Temasek Holdings, the investment arm of the Singapore government, is planning to cash in on the financial needs of India’s under-banked population through its non-banking finance arm Fullerton India Credit Company Ltd.
Through its wholly owned subsidiary Asia Financial Holdings Pte. Ltd (AFH), Temasek has already invested $150 million (Rs615 crore) in Fullerton India and committed another $50 million by the end of the calendar year 2007. Since January 2006, when Fullerton commenced operations, it has built a 120-branch network in 40 towns and a loan book of Rs1,500 crore.
The non-banking finance company (NBFC) does not take public deposits. It offers a range of financial products and solutions, tailor-made for the salaried individuals, small shop-owners and entrepreneurs with a turnover of less than Rs2 crore.
For salaried individuals, loans can be as low as Rs10,000 up to Rs50,000, and for small entrepreneurs it can be in the range of Rs70,000-100,000. Interest rates typically vary between 1.5% and 3% per month, depending on the profile and credit risk of the customer.
On an annualized basis, the rates are typically pretty high, 18%-36%. The customer can choose a repayment cycle of six months to two-and-a-half years, depending on his/her anticipated cash flow.
In that space, the company is competing with HSBC’s Pragati Finance, a scheme that offers personal loans to shopkeepers and small entrepreneurs. HSBC offers loans in the range of Rs10,000—50,000 and charges about 3% interest per month.
However, public-sector banks such as Chennai-based Indian Bank, that have been aggressively reaching out to un-banked people, offer loans at much lower rates.
Despite that, players such as Fullerton can grow their business as the base of potential customers is very high and spread out. Besides, an NBFC scores over banks by offering personalized services. Moreover, for many of the so-called unbanked people, access to credit is more important than the price at which it is offered, say industry executives.
The list of other large foreign NBFCs operating in India includes Citi Financial, a Citibank outfit, and GE Money.
More than 200 million of India’s population are under-banked and very few commercial banks have been willing to reach out to them.
Fullerton is following the Bank Danamon model that concentrates on relationship-based community lending. In its earlier avatar as First India Credit in late 2005, a core team of 12 employees of Fullerton India spent time in Indonesia studying the “community model” that offers credit to the retail and commercial mass market.
Says Fullerton India CEO and managing director G.S. Sundararajan: “Temasek saw the opportunity in the sheer numbers in India. The underbanked population, only in urban India, is 50 million households. Out of these, only 10% are being serviced by all the banks in India. Going by the success of relationship-based lending, Temasek is committed to the India opportunity.”
“Though we largely follow the community model, the way India is structured is different because of its cultural diversity. Our differentiator against other banks and financial institutions is wherever we are, our branch is not more than 5km away from a customer. Each of our customers is assigned a dedicated relationship officer who acts as the primary contact point for all the financial requirements of the customer,” adds Sundararajan.
Fullerton plans to have a presence in 250 locations through 500 branches by the second half of 2008, largely in locations such as Vijayawada, Guntur (both in Andhra Pradesh), Nanded and Kolhapur (both in Maharashtra). Over the next three years, it has set targets of reaching out to 400 towns across 12-14 states.
Though it currently caters only to the urban under-banked customers, it has plans to reach out to the rural populace soon. “We are in the process of doing extensive research in the rural areas. The potential is great and we are sure we will be able to reach out with our products and services to the rural population soon,” says Sundararajan.
Temasek, which likes to keep a low profile, has been eyeing opportunities in the under-banked segments in Southeast Asian countries. Its AFH arm has picked up between 25% and 70% stakes in Bank Danamon in Indonesia, Alliance Bank in Malaysia and NIB Bank in Pakistan. Temasek also has a stake in ICICI Bank Ltd as well as DBS of Singapore, which operates in India through one branch.
The firm manages a diversified global portfolio of $63 billion, spread across Singapore, Asia and the Organization for Economic Co-operation and Development economies.