[vc_row][vc_column][/vc_column][/vc_row][vc_row][vc_column width=”1/4″][vc_separator color=”sky”]Part 1: INTRODUCTION[vc_separator color=”sky”]Part 2: METHODOLOGY[vc_separator color=”sky”]Part 3: FMCG[vc_separator color=”sky”]Part 4: HEALTH[vc_separator color=”sky”]Part 5: FINANCE[vc_separator color=”sky”]Part 6: TEXTILE[vc_separator color=”sky”]Part 7: HOUSING[vc_separator color=”sky”]Part 8: TELECOMMUNICATIONS[vc_separator color=”sky”]Part 9: DIVERSIFIED MANUFACTURING[vc_separator color=”sky”][/vc_column][vc_column width=”3/4″][vc_single_image image=”2200″ img_size=”medium”][vc_column_text css=”.vc_custom_1455704239511{padding-right: 10px !important;padding-left: 20px !important;}”]
Part 5: Finance
The list of enterprises include ICICI Lombard and Mahindra Rural Housing Finance Ltd.
ICICI Lombard
ICICI Lombard is the largest private sector insurance company in India and provides various general insurance products and services.
The agriculture sector is the significant contributor to the Indian economy (24% of the GDP) and nearly 60% of the population depends on it for a livelihood. Any change in the output has a multiplier effect on the economy as a whole. In India, the rural economy faces strain due to the variations in the rainfall from season to season that leads to crop failures. It often results in farmers under heavy debts. They are unable to save enough money to buy insurance for them or their families.
Crop insurance is based on the fundamental principle of the insurance business, that is, the ‘laws of large numbers’. The risk is distributed across space and time. Crop insurance brings in security and stability in farm income. Crop insurance protects farmers’ investment in crop production and thus improves their risk-bearing capacity. Crop insurance facilitates the adoption of improved technologies and, encourages higher investment resulting in higher agricultural production.
On recognizing this need, ICICI Lombard came up with weather-based crop insurance program. Weather insurance is a protection for losses that may arise due to abnormal weather conditions such as an excess of rainfall, a shortfall in rainfall or variations in temperature, wind speeds and humidity.
Under this program, filing claims is a hassle free process as farmers do not have to file claims. Payments are released on certifying deviations from normal conditions measured by weather data collected from independent third parties. By mid – 2010 it had implemented the model in 14 states, comprising 64 districts and covering 26 crop varieties. It provided insurance covers to 1582 farmers for over 171 acres of land in the areas of Rajasthan and Andhra Pradesh. Sum insured for this cover was Rs 24 million.
ICICI has introduced several customer-centric feature that have helped gain trust and confidence of farmers who have traditionally believed that their money is safe with the public insurance companies.
It has also launched a weather insurance for crop loan portfolio. Under this, the repayments of crop loans given to farmers depend on the revenue from crop harvest. Good crop harvest further depends on rainfall in the area as good rains give good yields. Keeping this correlation in view Weather Linked Loan Portfolio Insurance was offered to an NBFC lending agricultural loans. The claim payouts from compensates the loss of repayments.
ICICI Lombard also undertakes different activities improving the societal conditions. ‘Caring Hands’ campaigns offer free heath check-up to underprivileged school children across the country. They have covered over 50,000 children from more than 200 schools out of which 50% of the company’s employees have reached out to 21,242 students in 173 schools in 73 cities.
Mahindra Rural Housing Finance Ltd.
Mahindra Rural Housing Finance Limited (MRHFL is a subsidiary of Mahindra and Mahindra Financial Services Limited (MMFSL) and offers home loans primarily in rural areas.
MMFSL has been operating in Rural India for over 15 years by concentrating on financing farm equipment and vehicles for the under-banked customers.
In 2001, rural India lacked nearly 24 million homes mainly because of people’s ineligibility to take loans from banks. Rural consumers lacked proper documentation and income proof. On the other hand, moneylenders that operate in rural areas charge exorbitant interest rates and fees.
Due to lack of home financing resource, it prevents people in rural areas to build houses or complete its construction. Around 68% of India’s household reside in rural areas, while just 7.45% of loans disbursed were used for rural housing.
There is a growing demand for home construction, improvements, and extension. Mahindra identified business opportunity in this societal challenge and established Mahindra Rural Housing Finance Ltd in the year 2007. MRHFL has its operations in 9 states namely: Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, and Bihar.
It is present in 35,000 villages across India and have 1,000 branches all over India. Rural areas with 300+ customers have local offices. Its parent firm Mahindra has a presence in more than 2,00,000 villages that it can leverage on.
MRHFL offers loan ranging from 50,000 to 5, 00,000 construction of houses to the underserved rural people with a repayment period of 5 to 7 years reducing their default risk. Due to lack of documentation that supports credit history of rural customers, credit evaluation is based on field investigation. To make it feasible, Mahindra has developed matrices for making credit decisions based on some assets & lifestyles.
Repayment options/premium payments are tailored to the customer requirements and is based on harvest time and crop yield. It uses low-cost technology model for performing activities like payment collection and keeping a tab on premiums from the rural consumers. Payments are collected in cash from the doorstep at a time that is convenient to the rural consumers. Farmers can prepay their loans if they have a good harvest. No penalties are charged, and farmers save on interest,
Mahindra managed to break even in the year 2009 and has been making healthy profits ever since. In 2013, out of a target of 1.62 lakh, MRHFL did 56,000 loans that are almost a market share of 35%. Till date, it has disbursed over 2,60,000 loans to rural families and have benefited to more than 1 million families. Mahindra served more than 81,000new customers in 2014-15, which increased the growth by 44% from previous year. The loans have allowed 25% of its customers to have proper sanitation facilities and improve health & overall well-being.
Extending an easier access to housing finance, companies like Mahindra Rural Housing Finance have uplifted rural communities that have created an inclusive economic development model. It has helped in improving social equity in a sustainable manner. Inclusive development initiated by Mahindra is not only limited to the construction of houses but also generates employment opportunities in its operating areas by hiring and training personnel. Employees get paid according to the number of customers that they sign-up rather than the loan amounts. As of March 2014, Mahindra has created more than 3,000 jobs.
Mahindra has empowered women by their making them as a co-applicant for loans. It allows them to have a say in the loan application process as well as a sense of pride and empowerment.
By choosing an un-tapped market, Mahindra has opened up a new market for itself through its non-exploitative and innovative business model by providing adequate housing in rural India. Mahindra will achieve the scale it needs to be sustainable.
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