A ‘triple bottom line’ approach for operations
ESAF Small Finance Bank intends to bring people, planet and profit as part of all its business dealings and the focus will be on inclusive development and not just profit:
ESAF Small Finance Bank intends to bring people, planet and profit as part of all its business dealings and the focus will be on inclusive development and not just profit
ESAF Small Finance Bank, the Thrissur, Kerala-based MFI turned small finance bank has evolved what it describes as the ‘Triple Bottom Line’ approach in its business transactions. On par with the financial bottom line, the bank gives emphasis to social and environment bottom lines. K. Paul Thomas, MD and CEO of the bank explains: “In this ‘Triple Bottom Line’ approach, we focus on 3 Ps - people, planet and profit. With our emphasis on financial inclusion, our branches are connecting well with the captive area - especially with schools, religious institutions and small and micro entrepreneurs. The focus is mainly on inclusive development and not merely on lending money and reaping the rewards. We have in place an environmental policy that mandates promotion of green products. It also emphasizes on clean energy loans that mitigate environmental concerns. We are in the process of introducing ‘Haritha Loans’ which is intended to revive the farming sector.”
He adds that this assertive approach is pervasive in all stages of the bank’s transformation - from a society to an NBFC-MFI and from an MFI to a small finance bank.
BRANCH IN MUMBAI
The bank opened its branch recently in Mumbai as part of its pan-India expansion plan. By March 2018, it intends to open 145 new banking outlets. The Mumbai branch is the 60th branch to be opened. ESAF in fact has a presence in Maharashtra since 2004, with 33 micro banking outlets, especially in the Vidarbha region. Apart from the branches, it has 370 banking outlets in 10 states. It has plans to add more outlets and would soon have a presence in the North East.
The bank offers a host of banking services like ATMs, debit cards, safe deposit lockers, internet banking, and mobile banking, SMS banking, RTGS, NEFT and CTS. Some of the exclusive services it offers are the door step delivery services and Skype facility at branches. One of its unique offerings is the Hrudaya Deposit Scheme, which stands for a social cause. Through this scheme, the bank provides the customers an opportunity to be a part in the economic development of the bottom of the pyramid.
The deposits are used for the welfare and infrastructure development of the marginalized sections of the society - rural farmers, fishermen, vegetable vendors, etc - and as such the customer who opts for the deposit scheme becomes a part in nation building. An individual or a legal entity can join the Hrudaya Deposit Scheme with a minimum deposit amount of Rs15 lakh and for a minimum period of two years. An account can be opened through internet banking as well. The customer will also have the opportunity to gain first hand experience of how his or her money is used to improve the lives of the ordinary people in the country.
JOURNEY FROM 1992
Thomas traces the genesis of the bank: “ESAF was started as an NGO in 1992 in Mannuthy near Thrissur. In 1995, we started the Micro Enterprises Development Programme, after realizing that financial support was inevitable for the holistic development of the poor. In 1998, we further expanded our operations and received the first funding from Grameen Bank, Bangladesh, headed by the Nobel laureate Muhammad Younus. Gradually, both PSU banks and private banks started supporting us. In order to move towards a more regulated space, we launched ESAF Microfinance and Investments, in 2008, a non-banking finance Company. Although we have moved from non-profit to profit, we have never lost our focus on our social mission. This focus has been in tact in all the transformations we have undergone ESAF to ESAF Microfinance and now to ESAF Small Finance Bank.”
Thomas maintains that as a bank the target audience varies, depending on the nature of the product. “As a bank, we need to mobilize our deposit base. For that, we need to target the higher end of the spectrum primarily and then the customers
at the middle and lower end. At the same time, our loan products mainly target people at the bottom of the pyramid. From a products’ perspective, our endeavor will focus mainly on developing new products for the lower class. Also, a separate micro banking vertical has been created in the bank to cater to the needs of the bottom of the pyramid.”
He says the pivotal role being played by MFIs in financial inclusion was the prime reason why ESAF Microfinance received the banking license. “In the course of time, we would like to be known as a bank that caters to all the segments in the society. An educational product targeting schools at the high end is all set to be launched,” says he.
As a microfinance institution, ESAF has been offering doorstep banking service. How will this service get enhanced as it has now become a bank?
Thomas says the prime differentiator for ESAF Small Finance Bank will be its door step delivery service. “We want to provide our customers the ‘joy of banking’, by assuring them the missing link, ie, the human touch in banking, although we will make use of state-of-the-art technologies. This will be our USP and this will be the way we will make a difference,” says he.
“We have plans to appoint 10,000 agents for this purpose. These agents will provide services such as account opening, banking transactions and small value loans,” he adds.
FOCUS ON WOMEN
He also emphasizes that while the bank’s micro banking activities will continue to focus on women, as a bank it will broaden its target segment depending on the wide array of products it intends to offer.
All the customers of the microfinance company have now become customers of the bank. The number of customers today stands at 19 lakh.
Thomas says the cost involved in adopting new technologies and identifying the right talent to execute the various jobs were the prime challenges for the bank on the technology front. Besides, digital awareness at the bottom of the pyramid and connectivity at rural interiors were major challenges too on the execution front.
“Going by our core values, we definitely want to be a paperless bank that cares for the environment. For this to happen in an effective manner, we want to change the mindset of the people, especially at the bottom of the pyramid. Already, we have started initiatives for educating the people on the importance of environment friendly lifestyle. We have engaged FIS Global as our system integrator and we hope to over the challenges on the technology as well as execution fronts,” says Thomas.
The bank has also tied up with head hunting firms to get the right talent to manage technology and ensure that the services provided are efficient and effortless.
The bank already has its own ATMs, it has launched tablet banking, debit cards and eKYC. Within a short span of time, it intends to introduce POS terminals and a feasibility study is now under way on the same.
Thomas mentions that the bank has assets worth `3400 crore under its management. “As a bank we would be attaining a total business of `45,000 crore in the first five years of our operation. Approximately `25,000 crore of this would be met by the deposit base and the remaining will be from advances,” says Thomas.
Currently, 99% of the bank’s loans are micro finance loans linked to groups of borrowers, with an average ticket size of `60,000.
The bank intends to go for an IPO by 2020. The capital requirements will also be fulfilled through sources like PE and institutional investors.
Thomas says as per the licensing agreement with the RBI, ESAF Microfinance, the holding company will be converted into a core investment company. The process for the same is now going on.
Also, as per RBI guidelines, the holding company will have to bring down its stake to 40% in the next 5 years. ESAF Microfinance and Thomas, who is the founder of ESAF Group, are the promoters of the bank.
K. Paul Thomas speaks about the Hrudaya Deposit Scheme where the depositor will become part of the development of the bottom of the pyramid sections
Johny Joseph, former chief secretary of Maharashtra, opening the Mumbai branch