How much does it cost to deliver and collect one rupee
Chennai: The next big players in the economy,
especially at the bottom of the pyramid, could well be
the microfinance organisations. Reason: They provide
the last-mile financial connectivity for people, and
are equipped with the granular data about the
“We are looking at launching a few additional products
such as educational loan (seasonal) and loan for the
purchase of gold,” says Mr P.N. Vasudevan, promoter
and Managing Director, Equitas Micro Finance Company
India (P) Ltd, Chennai, talking recently to Business
Line, during a lunch-hour interaction, about his plans
on the anvil.
More importantly, using Equitas‟ valuable database, Mr
Vasudevan sees himself going beyond the financial
realm by bargaining for cheaper products/services to
benefit his borrowers. “We want to play a role in the
lifecycle of the customer by being an aggregator of
all our customers‟ non-financial requirements and we
will be looking to playing a value-adding function in
the same,” he avers.
A physics and law graduate, Mr Vasudevan is also a
qualified company secretary with more than 20 years of
experience in the banking and financial services
sector, having served in companies such as
Cholamandalam Investment and Finance Co Ltd and
Development Credit Bank. He was Chairman of the South
India Hire Purchase Association for the year 2005-06.
Excerpts from the interview.
You have moved into microfinance after a long innings
in commercial banking and financial services. Why?
I didn‟t know much about microfinance till I did a
thorough study about it for two months. Commercially
it is a large opportunity with Rs 2 lakh crore annual
credit demand, with less than 10 per cent being
currently supplied. It is also a very relevant social
business since it empowers women from the poorer
segment by giving them access to finance at a
reasonable cost. Seeing the impact our finance creates
on the lives of these people has given me a
satisfaction I had never experienced in my earlier
careers. A combination of these is the reason for my
being here in microfinance.
We talk a lot about financial inclusion. Is it
happening? Should the work of MFIs such as yours also
be counted for the reckoning of „inclusion‟?
Financial inclusion is a national agenda and it is
critical to achieve the same, so as to enable the
„Bharat‟ to benefit from the „India‟ growth story.
Reality is that more than 50 per cent of the
population in cities, and an even higher percentage in
rural India, are not part of the mainstream financial
system. While banks are not structured suitably to
reach this excluded segment, the MFIs (microfinance
institutions) can provide the missing link.
Considering that there is a large demand for
microfinance, where are the supply inefficiencies?
Traditionally the microfinance industry has been the
domain of NGOs, which were unable to scale or reap
efficiencies. The biggest inefficiency has been the
cost of reaching the money to the customer which is
where Equitas is specifically focussed.
You speak of marrying the technological and
operational strengths of retail banking with
microfinance. Can you elaborate on this?
The lending rates in MFI hover around 25 to 30 per
cent due to high operating cost. While this is
attractive compared to private moneylenders‟ rates,
there is still significant scope for reducing the
operating cost and pass on the benefits to the
customer. In Equitas, our aim is to leverage the
technological and operational efficiencies of retail
banking and bring the benefits of superior
productivity and efficiency to the customers.
In what ways have you leveraged technology? How has it
helped in cost control and other efficiencies?
We have put in place the best software available for
MFIs and were the first MFI in the country to start
business after the full IT system was in place.
Internet-enabled software, combined with centralised
processing, ensures that all backend operations are
done at the HO, leading to higher efficiencies and
also releasing the branch staff fully for
customer-facing activities, thus enhancing their
What are the insights about microfinance that you have
gathered so far in terms of borrower behaviour?
These customers have an amazing ability to manage
diverse pulls of family with an uncertain monthly
income. To them, education of children is a high
priority; and they are willing to spend
disproportionate amount of their income on the same.
If they are given, not subsidies, but access to
appropriate products and services, they would
definitely be able to improve the overall quality of
You have separate collection teams. How expensive is
it to deliver one rupee of finance? And to collect one
rupee? What are your strategies to reduce these costs?
Separating of sales and collections teams has helped
us improve controls as well as enhance productivity.
Typical cost of delivering a rupee is about one paisa;
and, for collecting, it costs about 8 paise currently.
Though we are already the most efficient in our
operations, the challenge will be to continuously keep
raising the bar on productivity and efficiency and
scale up to absorb the cost better.
What are the challenges to MF? What legal changes,
therefore, are the most looked forward to?
Challenges to MF are in terms of raising funds at a
reasonable cost and keeping the operations cost down.
As suggested by the Raghuram Rajan Committee on
Financial Sector Reforms, we would look forward to a
limited banking licence enabling the qualifying MFIs
to accept savings from our own customers, which will
be a great product offering to customers and also help
us reduce the cost of borrowings.
Just as the IT sector is important from an export and
employment perspective, the MFI industry is critical
from an inclusive growth perspective. Hence it would
be good if the Government looks at offering tax
incentives to MFIs with suitable safeguards.
Can our social welfare/development projects deliver
better results by tying up with MFIs?
It would definitely help to coordinate the efforts of
different agencies working for the same customer
segment. However, given the diverse nature of these
agencies, it would be a challenge and needs concerted
How do you ensure fairness and transparency in your
The name „equitas‟ in Latin means „equitable‟ in
English, that is, fair and transparent. We are
committed to ensuring that everything done in Equitas
lives up to its name. For instance, we are the only
second MFI in the country to print the reducing
balance interest rate (real interest rate) in the
passbook of the customer, equivalent to the annual
percentage rate (APR) which is mandatory in the US. We
are also the only institution in the country
(including banks) to give the break-up of the
insurance amount collected from customers, between the
premium payable to the insurance company and the group
administrative fee retained by us. The prerequisite
for being transparent is being fair.
You have initiated CSR activities…
As part of our CSR (corporate social responsibility) ,
we have formed a trust, the Equitas Development
Initiatives Trust, to focus on education for the poor
and community development. The trustees include Dr
C.K. Gariyali, former bureaucrat, Mr R.
Balasubramanian, former High Court Judge, and Mr M.B.
Nirmal, founder of Exnora International. We are
looking at playing a role in the „after school‟ life
of the students, by tying in the school education
process to lead to better placements, both on further
education and career options. In the area of community
development, we are working closely with Exnora and
taking their expertise to improve the living
conditions in the communities where our customers
reside. We have taken up pilot projects; based on the
experience we will be scaling up the activities.