Banks and other financial institutions are hesitant to fund small entrepreneurs who want to set up shops like grocery stores, but one finance company whose lending business is heavily-focussed on this segment is Shriram City Union Finance Ltd (SCUFL). In fact, it has also doubled its target for loan disbursements.
SCUFL, a non-banking finance company of the Chennai-based Shriram Group, which was incorporated in 1986, lends primarily to small enterprises, self-employed professionals and wholesale and retail traders.
The company operates in the states of Tamil Nadu and Andhra Pradesh. “Our monthly disbursals are around Rs 400 crore, which we want to double in the current fiscal,” said R Kannan, SCUFL’s managing director.
The company has 550 branches across the two states, and is planning to enter Haryana and Rajasthan. The focus will be Tier-III, -IV and -V towns.
SCUFL has said lending to its chosen segment is a profitable business, with net non-performing assets (NPAs) as at March 31, 2010 just 0.71 per cent (down from 0.96 per cent as on March 31, 2009), and gross NPA levels 2.27 per cent.
Every month, the company ropes in around 150,000 customers in the retail space alone, across Tamil Nadu and Andhra Pradesh. “These are people from whom banks and other financial institutions are shying away, saying that lending to them is a risky business,” said Kannan.
A credit evaluation and recovery mechanism, a localised presence, domain knowledge and individual knowledge of customers helps SCUFL to control NPAs, said Kannan.
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“We deal with the customers personally instead of operating through brokers,” he said. Unless the lender knows the customer personally, it is difficult to survive in this business, he added.
Moreover, Kannan explains that when customers approach SCUFL for retail loans, the company does not ask for documents or accounts. Instead, its field officers visit their shops and sometimes spend an entire day there to assess their sales models and operations.
“We assess the margin available in the business, our people sit at the counter on a particular day, assess sales for the previous 30 days, and check delivery slips to find out in how many days they sell a product.”
He says in 48 hours the company decides and lends the money, purely based on the on-the-spot personal assessment, and the branch manager is authorised to lend up to '5 lakh.
The company charges an interest rate of 24 per cent (which, Kannan said, is profitable), compared to 36-40 per cent charged by private lenders.