Innovation Drives Growth at Manappuram – V. P. Nandakumar

As a rule, whenever a firm moves up the pecking order to acquire a position of leadership in the market, you can be sure that innovations have a played a major part. Manappuram Finance Ltd. is no exception. In fact, we take pride in our culture that fosters innovation and the ability to think differently. Consider the record.

First to advertise loans

Manappuram’s founder, V.C. Padmanabhan (my late father), ran the business in a very risk-averse manner. Over the years, the firm had acquired a wealth of goodwill but, being a typical conservative banker, he maintained a self-imposed cap of Rs.25 lakhs on the deposits he was willing to accept. It may seem hard to believe but people in those days were actually told to wait in a queue and allowed in only when an existing depositor withdrew his money.

When I took over in 1986, I decided to expand the business and do away with this voluntary cap on deposits. Thanks to the goodwill Manappuram had built up, deposits began to flow in. Very soon, we faced difficulties in stepping up lending in proportion to the inflow of deposits. That was how, sometime in the late 80s, Manappuram became perhaps the first firm to advertise its gold loans. Those were the days of credit rationing, when banks competed to attract deposits but they never had to advertise loans. Manappuram did something unheard of in those days. We took out ear-panel ads loans in the local papers, to sell our gold loans.

First corporate entity in gold loans

A few years after taking over, I realised that the proprietary set-up in which we carried on gold loans was not conducive to growth and expansion.  That was how I promoted Manappuram Finance Ltd. in 1992. The original plan was to capitalise on the opportunities opening up in the leasing and general finance areas. Initially, there was no place for gold loans in this strategy (which continued with the original proprietary concern).

However, sometime in the latter half of the 90s, the CRB scam prompted a regulatory backlash against NBFCs. We ran into a serious funding problem and faced an asset liability mismatch. Around this time, we decided that Manappuram Finance Ltd. should also get into gold loans. We became the first corporate entity in India to get into this business. Until then, gold loans were carried on in a very traditional manner, mostly by neighbourhood pawnbrokers and moneylenders. As the first corporate entity to get into gold loans, we succeeded in introducing scale, technology and professionalism to the activity. Manappuram went on to revolutionise the gold loans business in India.

Innovative fund raising

As the first corporate entity to get into gold loans, it took many years for the company to gain acceptance with banks and financial institutions. In fact, banks were initially sceptical about our business model and hesitant to lend money to us. We overcame this hurdle in a unique way. Instead of continuing to knock on the doors of domestic banks (and getting rebuffed), we decided to head out of India.

In December 2007, Manappuram Finance became the first NBFC in Kerala to garner foreign institutional investment when Sequoia Capital, the celebrated private equity fund, invested Rs.70 crores together with Hudson Equity Holdings. The second round of private equity funding happened in November 2008, when circumstances were the bleakest with the global financial markets in a tailspin. It was led by Ashmore Alchemy which, together with Sequoia and Hudson, put in another Rs.108 crores. Once the foreign investors came in, there was no looking back for Manappuram. From this point on, banks in India had no further inhibitions in lending to a pioneering gold loan company like Manappuram.

Later, sizable foreign investment was received during two rounds of qualified institutional placements (QIP) in 2010 when a total of Rs.1,245 crores was raised. In fact, the QIP in November 2010 raised a mammoth Rs.1,000 crores which is, even today, the single largest foreign investment into a private company in Kerala.

Technology innovations

In the matter of technology, Manappuram has been a pioneer in the gold loan sector. We were the earliest to adopt the “core banking” platform. This was a major achievement considering that unlike the banking sector there were no ready-made software solutions for gold loans. We invested in the development of our own proprietary solutions, and today our technology platform is one of our core strengths.  Our investment in technology has paid off in many other ways, for example, in streamlining procedures to reduce turnaround times in gold loan disbursal and in implementing advanced risk management practices.

Product innovations

Manappuram has led the way In the matter of product innovations too. For a long time, gold loans were sold as a “one-size-fits-all” product. The company was a pioneer in introducing variety to gold loans. We were the first to offer progressively higher loan amounts at higher price points.  We were also the first to come up with the concept of “one-day interest” in gold loans. We gave borrowers the flexibility to settle a gold loan at their earliest convenience, even within a day. They were required to pay interest only for the actual days the funds were utilised. Till then, the industry norm was to recover interest for a minimum of fifteen days or even a month.

Innovative marketing

Despite the vast amount of gold in private hands in India, the gold loan business is yet to grow to its true potential. There is a continuing stigma attached to pledging gold. And so, rather than use their gold to raise money, many would still prefer go to moneylenders and borrow at exorbitant rates.

Manappuram was a pioneer in tackling this sensitive issue head-on. In 2010, we adopted a strategy of a big-budget advertising campaign revolving around high-profile and credible brand ambassadors with strong regional appeal. The idea was that credible local brand ambassadors would talk to people in their own language and educate them about the virtues of gold loans.

The concept of using brand ambassadors to promote one’s products is not new. But the practice was to use one celebrity brand ambassador for the whole country. Manappuram pioneered the use of multiple brand ambassadors, each specific to a particular geography, e.g. Mohanlal for Kerala, Vikram for Tamil Nadu, Mithun Chakraborty for Bengal, Akshay Kumar for Hindi speaking states etc. Manappuram’s advertising campaign featuring celebrity brand ambassadors has been hugely successful in growing the gold loan business throughout India, and benefits have been reaped players across the sector.

Innovative CSR

As a socially responsible business, Manappuram has always stood by its responsibilities to the community. The Manappuram Foundation was set up in 2009 to spearhead our CSR mission. Its landmark initiative was the “Janaraksha – Manappuram Free Health Insurance Scheme” which provides free health insurance to about 20,000 BPL families in seven identified Panchayats around Valapad in Thrissur District. The policy covers their medical expenses up to an annual limit of Rs.60,000. The premium payable by each beneficiary family is funded entirely by the Manappuram Foundation at a recurring cost of over one crore rupees. The Foundation also employs a team of trained social workers and psychiatric social workers to assist beneficiaries in filing claims under the scheme and provides psychiatric counselling services to them. Today, the scheme is widely hailed as a model CSR initiative, relevant to the needs of the community, and well implemented.

Looking ahead

It’s fair to say that these days gold loan NBFCs in India are up against very challenging circumstances. Our ability to survive and to thrive under adverse conditions will depend largely on our continuing capacity for innovation. It’s a challenge that Manappuram is well placed to take on.

V.P. Nandakumar is MD & CEO of Manappuram Finance Ltd.