Arohan Financial Services

Largest NBFC-MFI in Eastern India and fifth largest NBFC-MFI in India

As of September 30, 2020, the company was the largest NBFC-MFI in Eastern India and the fifth largest NBFC-MFI in India based on GLP. Among the top 10 NBFC-MFIs, the company had the third highest GLP CAGR between Fiscal 2017 and Fiscal 2020. Among the Eastern India-based NBFC-MFIs, it had the highest growth in customers between Fiscal 2018 and 2020.

Focus on Low Income States

As of September 30, 2020, the company's microfinance business was present in 13 states, including 12 of the 14 Low Income States in India. As of Fiscal 2020, it also had the second lowest average disbursement size of ₹21,373.00 among the top 10 NBFC-MFIs. This positions the company well in a market with significant room for future growth.

Seasoned business model with established risk management framework

The company has a seasoned business model incorporating well-developed approval processes and controls, and implementation of well-established risk management frameworks. It has implemented a comprehensive credit approach (CB360 approach) to determine customer indebtedness. The company continues to focus on portfolio at risk (PAR) recovery drives to manage and maintain the quality of assets and loan portfolio.

Customer centric approach with diverse product offerings

The company offers a range of financial inclusion products to low-income individuals who are under-served by formal financing institutions. It provides loans from as small as ₹10,000.00 entry level business loans to as large as ₹250.00 million term loans to small MFIs. The company also cross-sells secondary loan products and offers life and health insurance policy products through partnerships with insurance companies.

Advanced and scalable technology-enabled infrastructure

The company has implemented various technology-based tools and platforms to advance and scale its infrastructure, strengthen financing initiatives, and derive greater operational, cost and management efficiencies. These include 'Gravity' for loan origination, 'Profile' as a core banking system, data analytics, 'Perdix' for internal audit, and 'Diligent' for corporate governance.

Diverse borrowing relationships and access to multiple sources of capital

The company has secured funding from a variety of sources including term loans, working capital facilities, revolving facilities, proceeds from loans assigned or securitisation of loans, external commercial borrowings, issuance of non-convertible debentures, and subordinated debt borrowings. As of December 31, 2020, it had over 40 lenders. The company benefits from the RBI's priority sector lending policy and has asset liability mismatch strategies in place.

Experienced management team and Promoter ownership

The company's Promoters collectively hold 34.32% of the issued, subscribed and paid-up share capital. The management consists of professionals with experience in microfinance, consumer finance, investment banking, retail banking, consulting and insurance. The company's Managing Director has extensive experience in the MFI sector and chairs the governing board of Microfinance Institutions Network (MFIN).

Inability to control non-performing assets (NPAs)

If the company is unable to control the level of non-performing assets (NPAs) in the future, or if its impairment of financial instruments allowance is insufficient to cover future loan losses, the company's financial condition and results of operations would be materially and adversely affected.

Disruption in funding sources

The company's business requires funds regularly, and any disruption in its funding sources would have a material adverse effect on its operations.

Vulnerability to interest rate risk

The company's financial performance is vulnerable to interest rate risk, and an inability to manage its interest rate risk may have a material adverse effect on its net interest income.

Asset-liability mismatches

The company may face asset-liability mismatches which would expose it to interest rate and liquidity risks that could have a material and adverse effect on its business, financial condition and results of operations.

Potential loss of priority sector lending classification

The company's loan portfolio may no longer continue to be classified as priority sector lending by the RBI, which could affect its business operations.

IT system security failures

The security of the company's IT systems may fail and adversely affect its business, operations, financial condition and results of operations.

Concentration of loans in Low Income States

A significant portion of the company's loans are to customers located in Low Income States, including West Bengal, Assam, Bihar and Odisha. Any adverse changes in the conditions affecting these regions, including local unrest, may have an adverse effect on the company's business and results of operations.