10 years ago,
when we began this journey, affordable housing
was not the buzzword it is today.
In fact, when we spoke to people about giving
home loans to the lower income or informal
sector, people often compared it to the subprime
us mortgage crisis, and that such kind of
lending would lead to more potential meltdown
here as well.
But our belief was quite strong.
You know, in the famous court of Professor
Muhammad Yunus, who the father of micro finance,
he often is quoted saying it's not that the
people are not creditworthy is the banks,
which are not people who are the so the Grameen
model of microfinance, I kind of followed
that and had become quite successful in India
in around by around 2008.
The growing at a fast pace and had a good
repayment track record as well.
And on the other hand, we have the housing
finance in Street, which is doing extremely
well, historically in India growing at over
15 20% every year, again with very low NPS,
but somehow, the housing finance companies
are not kind of stepping down to provide those
small five to 10 lakh rupee loans.
Nor was the microfinance sector prepare to
step up from their usual 25 to 30,000 rupee
loans, which are mostly used for business
purposes, two groups of women.
So, we spoke to a few builders as well at
that time, and to understand the challenges
and low cost housing and they said, Yes, of
course, it's very difficult cost of land is
very high.
The FSA norms are not in our favor.
There's so many design issues.
And there are delays in a project just like
any other project, which adds to the cost
of construction and hence lower profit margins.
But it's very interesting that they also highlighted
that even if we do build these small homes,
there was no bank or a housing finance company
prepared to actually give loans to this
low income informal sector customer
due to either lack of documentation, proof
of income or proof of address and so on.
So, we saw this gap and
thought why not marry the best practices
of housing finance the product of housing
finance, with the methods of micro finance
of the personal touch kind of credit appraisal,
and provide what we call
micro mortgages and image of car company was
born.
housing finance industry historically, I'm
even today is a very regulated industry in
India and you need a license before you can
start operations.
And it was always dominated by large players,
you know, HDFC SBI, other insurance companies,
subsidies, etc.
So, when three individuals like us, my two
co founders, and I
we had never done
mortgage finance before we had never done
retail banking before, and we had never even
taken a housing loan before ourselves.
So here we were three of us waiting at the
National Housing bank asking for a license
to start doing housing finance to an untested
market.
But looking back, I feel what he kind of lacked
an experience.
I think we made it up in the passion to,
to make it work.
We were all from Mumbai, I had grown up in
Mumbai.
So the problem housing shortage is not anything
new at all.
Whether it's the airport slum, or the world,
Islam, cola Muslim, and on top of that, the
people who living there are paying in per
unit terms more for water for electricity,
and sometimes even the rent per square foot
is higher in a slum than it is in a premium
housing environment in India.
We applied to the National Housing bank for
a license and they were actually quite supportive
with the contract.
They said that this was the need of the hour.
They said that there needs to be a company
which focuses on the low cost housing sector.
So, in fact, we got a license in February
2009, and became our first loan in the May
of 2009. set operations in May.
From the very beginning, we knew that we wanted
to build a sustainable company a sustainable
venture, not profit maximizing definitely,
but also we knew we could not run it like
a charitable organization.
So we set our home home loan rates around
2% more than that of the SPI, which at that
time was about 12%.
To give a comparison, micro finance was charging
close to 24% at that time, so we had to be
very cautious and very careful with our costs.
And in any lending business.
There are basically three kinds of costs.
Broadly speaking, you have a cost of capital,
that's the most important if credit costs.
And last is your op x, we decided to focus
on our optics for We knew that, you know,
technology is not something which is a backend,
which you can outsource, you know, it's something
that really adds to the experience the user
and when I say users, both the customers and
your employees as well, it adds to your USP
and something what differentiates you.
So we, from the beginning, built a technology
platform, which is completely online.
We started doing paperless lending on a completely
mobile platform as well.
We did not have any brick and mortar branches.
All the loans were processed in digitally
centrally as well.
The loans were dispersed to builders electronically
into designated bank accounts in before I
was in place this back in 2009.
And we made the customers open bank accounts
as well.
Just require a lot of counseling because
people,
especially in this cash driven economy are
not very used to saving their small savings
in bank accounts for this helped us collect
the ATMs to the PCs clearing.
So our system today captures close to 200
objective data parameters along with media
like photos, videos, and audio interviews
like the one we saw right now.
And even GPS coordinates to easily verify
customers locations.
With 10 years of data like this, we are ideally
placed to leverage and exploit new modern
techniques like machine learning and artificial
intelligence to better predict customer behavior.
Although technology was very important for
our credit appraisal, we knew we could not
let that come in the way of the personal touch
that we wanted to maintain with our customers.
So even today, our field offices would go
out in the field, meet with the Margiela,
understand their business, understand who
they're buying from who they're selling to
get a guest on their profit margins, and ultimately
derive their cash flows.
It's a very Physical verification driven approach,
the mandate every field officer to visit the
current home of the customer as well because
that plays a very important role in assessing
why the customer needs to buy the home.
So we assess the customer on two fronts really
ability to pay and the willingness to pay
and we give equal wage to both.
So as as a result of this model, we were able
to achieve kind of a doorstep banking experience
as far as the customer is concerned, and a
very rich on feel like experience for the
credit committee who sitting back in office,
approving loans on their computer or sitting
at home offering on the iPads as well.
We made sure we follow a very conservative
credit policy.
We always ensured or encouraged customers
to put in more down payment and borrow less
it just slightly counter to a financial institution
if you make more money if you get more loans.
But that's that's how it was because we wanted
the loans to be more affordable, we wanted
the installment to the income ratios to be
affordable to the customers as well.
I'm actually quite proud to say that this
last fiscal year we ended with an MP ratio
of under 1%.
So this really highlights that the customers
are willing to pay and have the ability to
pay these loans back on time and is not short
term loans long term most likely.
So it's a 20 year loan for 20 lakh rupees.
It's a long term liability that they're getting
into, but they're doing it well on raising
money from banks.
It was quite tough, you know, in the beginning,
but we stuck to our customer segment, we did
not diversify into something else we very
focused, we stuck to a conservative growth
strategy.
And our credit rating was improved to almost
a minus, which is probably one of the best
amongst our peers, thanks to a control on
credit costs, as on date MFC has raised close
to over 500 borings from various financial
institutions, private sector banks, public
sector banks, and the National Housing bank
was a regulator.
And also, the multilateral agencies like the
IFC was the subsidy of the World Bank, this
kind of on field, pro field and anti office
kind of culture, we knew we had to hire a
different set of people as well.
Now the typical financial institution type.
Also we had seen ample cases of mis selling
that goes on in the market.
So we didn't want that to happen.
We wanted our field offices to be actually
brand ambassadors of our company.
We had seen that students from Social Work
colleges, like working in the field, they
have done projects in the community.
They have that rapport with the customers
or with the community, and they're passionate
for social change.
So we hired more from Institute's like the
TI ss, like the Delhi School of Social Work,
or azim premji University and so on.
In addition to that, because we were very
new ourselves to the sector, we are always
open for new ideas to try new things out.
So it led to a very open office kind of culture.
In terms of flat, no hierarchy, kind of, you
know, we are behavior, which is quite quite
nice to have.
And we had one of a kind of Aesop's team as
well for stock options, almost everyone in
the company owned stock options, including
the person who was serving giant coffee to
us.
So this really imbibed a sense of ownership
in everyone and everyone was working towards
the same goal with the same passion as the
founder.
In terms of impact.
I mean, that every single loan that we did,
we helped a family move from a slum or a chore
into an apartment of their own.
So I mean, it 20,000 such loans right?
About five people per household that's impacting
about one lakh people.
Actually, it's just not just that because
when we started, we were the only ones who's
doing this kind of low cost housing finance
and about five years into it.
People saw that this is actually being successful
people are paying the loans back on time.
So today, there are at least 15 more housing
finance companies which have come up into
the sector, and they are themselves going
to do 1020 30,000 loans.
And selfishly, I would like to take some of
the credit of that as well, to our team at
MFC.
With so many housing finance companies now
into the segment, builders have got that confidence
that if they do build these apartments, there
are banks who are willing to fund this customer
segment.
So today, affordable housing is like a recession
proof business and everyone wants to enter
it.
Not like that when we started actually about
a month ago.
We got acquired by one of the most prominent
industrial families of the country.
And this is actually one of the best compliments
that any entrepreneur can get, obviously letting
go of stuff, you know, it's your creation,
but it's it shows that we built something
which was have as much value to us as to such
a large and accomplished industrial house.
With their unparalleled access to funds and
ability to reach new customer, I think MFC
can grow to heights that we could never imagined.
So, we are very glad to hand our baby so called
into the right, right people, we stumbled
upon this market driven solution for a social
problem.
This about 10 years ago, it was a crazy idea.
That led to a business plan in an Excel sheet,
which led to us raising capital, then building
the company scaling it up profitably,
and eventually getting acquired.
It's a long journey.
Obviously there are ups and downs in this
journey.
But one thing was always constant the satisfaction
of helping 10 2030 families, buy their own
homes by their own dream homes, every single
day that we were in office, I think, or I
hope our journey truly inspires budding social
entrepreneurs to take that plunge and make
our world a green better than when they found
it.
Thank you.
Transcribed by https://otter.ai
