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Circa 1995. The economic reforms initiated in 1991 had started bearing fruit, and the nation had taken its first steps towards becoming an economic powerhouse. The year was significant to the now US$19.4 billion Mahindra Group as well. Mahindra Finance, in association with Mahindra dealers, began its life formally. What had started as a small experiment by M&M a few years earlier to help farmers purchase M&M vehicles was now a clear business unit that would focus on rural and semi-urban consumer finance. It was the start of a journey to empower every individual, especially in rural and semi-urban areas, with resources to achieve their dream.
Today, Mahindra Finance is the leading non-banking finance company in the rural market, with over 1300 branches across India’s 28 states and nine union territories. It is present in every single district and has customers in four lakh villages. It has transformed from a tiny entity offering a single-product to a financial giant with a range of offerings and a customer base of over 6.9 million people. It doesn’t only finance Mahindra vehicles – it is among the biggest financiers of Maruti cars in rural and semi-urban areas now.
And yet, it is not the numbers that tell the story of the company’s growth and success. It is the story best told by how Mahindra Finance brought a major change in the lives of its customers and how it truly embodies the Mahindra Rise philosophy.
Take the case of Kajal Bera of Bengal, for instance. She was running a small spice business. To expand and service her customer base, she needed a utility vehicle. But her application for a loan had been turned down by every bank she had approached. That was when Mahindra Finance stepped in to help her not only with finance but also a tailored loan that she could repay easily. The spice business grew rapidly, and when she wanted to diversify into selling packaged drinking water, the company stepped in once again to provide her with the funds she needed. Bera now has three more UVs, all financed by Mahindra Finance and is a customer for life.
Mahindra Finance’s climb to becoming rural India’s favourite financing company can be explained to a large extent by the fact that it does not merely provide financing – it educates customers on financial prudence, builds confidence that their dreams count, and helps them break the ignorance-poverty nexus. By helping them transform their lives, it has also become a catalyst for the transformation of “Bharat”.
A strong set of values, and highly motivated employees who accept no limits, think alternatively and help drive positive change, provide the wings on which the company rides.
Asking the right question
The genesis of Mahindra Finance was the result of a question raised during an M&M dealers’ meeting in 1992. One dealer took to the dais and pointed out that retail loans were not easily available in rural India. The formal financial sector was far removed from the realities of the Indian hinterland. This gap was a barrier for all: farmers, families, suppliers and dealers.
As Bharat Doshi, former chairman, Mahindra Finance recounts, “As the question churned in my mind, an idea was born.”
The idea was enthusiastically welcomed, and the management decided to form a finance company in which dealers would also hold equity. Under the leadership of PG Chitale and later Sudhir Kaji as CEOs, Ramesh Iyer (now Vice Chairman and Managing Director) from Operations and V Ravi (now Executive Director and Chief Financial Officer) from the accounts department were assigned the responsibility of steering the startup. The initial goal was modest – to just help customers in the hinterland with the financing they need to purchase M&M utility vehicles.
Venturing into uncharted waters
It was a time before the rural and semi-urban geographies had become attractive and most non-banking finance companies (NBFCs) were reluctant to explore these markets. The public sector banks were the prime lenders in these areas but often getting a loan from them was a tedious process.
For the fledgling finance company, the risks and the unanswered questions were many— the absence of credit history data and authenticated personal identification, wary customers who did not like outsiders asking too many questions, and finally the challenge from traditional money lenders who did not want their grip to be weakened by a new player.
Winning the trust of the farmer and his family members who were not impressed by technology and gizmos was a tough task. But the team refused to be intimidated. They held on firmly to their belief in the potential of rural financing to drive business and thereby change the socio-economic landscape of rural India.
Two years before Mahindra Finance was formally born, the experiment had already started. In 1993, the group had disbursed its first loan for a utility vehicle. (A basic corporate entity called Maxi Motors Financial Services had been incorporated in 1991 but the business took off only after Mahindra Finance was born in 1995). By 1998, the organisation had 15 people not just sharing desks in a crowded office, but also sharing the startup spirit.
An inclusive culture - key to performance
While the systems and processes evolved, the building blocks of a unique organisational culture were put in place. Trust, empowerment, inclusiveness, aversion to bureaucracy, willingness to take on well-considered risks and an extraordinary esprit de corps have all been the foundational traits of Mahindra Finance.
The startup followed a diversified recruitment strategy long before diversity became a buzzword. It pioneered the hiring of young local women and assigned them even with challenging roles such as the collection of equated monthly instalments (EMIs). Recruiting retired army personnel was another route adopted to achieve diversity.
Scale and size have not altered the broader purpose of the company — that of having a strong, mutually respectful, and close relationship with customers, and being a part of the changing landscape of rural and semi-urban India. Many of these customers have evolved from being mazdoor (worker) to maalik (entrepreneur).
Girdhari Bundela, a resident of Nimsari, Dharampuri, in Madhya Pradesh, is one such customer.
Girdhari and his brother worked on their farm and at a small tractor dealership in their village. Despite having a dual income stream, they were only just managing to make ends meet. The big problem: the ability to take advantage of mechanisation and to improve productivity in the farm. They wanted to buy a tractor, but their loan was rejected by bank after bank, as the land was held jointly by the entire family and the brothers, had no other collateral.
Finally, Girdhari walked into the Mahindra Finance branch without much hope – but came out with an approved loan for a Mahindra tractor. Productivity in the farm shot up. With the support of Mahindra Finance, he bought his second and then his third vehicle. Today, his income has made him a target clientele of many banks and NBFC, but he sticks to Mahindra Finance.
The company’s ethos resonates with the customer: Mahindra Finance considers itself successful if its customers are delighted and, in turn, are successful. In that sense, the fortunes of both are intertwined. The other secret for Mahindra Finance’s stupendous growth is that it is interwoven into the rural ecosystem. Employees are recruited from local, rural colleges. They know the market, and they are the market.
Focusing on the big picture
As the business continued to flourish, the next step was to go for an initial public offering (IPO) that would provide finances to grow faster. In February 2006, the company came out with the Initial public offering. Its market cap has grown from INR 2,000 crore at the time of listing to over INR 19,000 crore today, and almost all the major investors have stayed invested with the company since the beginning.
Having established a good network and a large customer base, the company set its sights on other avenues. It diversified into areas such as insurance and housing finance to meet the myriad needs of their customers. Mahindra Insurance Brokers Limited started as an agency for one insurance company, after which, owing to customer demand, it tied up with many other insurance providers to widen the product portfolio. To create an innovative, holistic product, Mahindra Finance started discussions with Om Kotak, the outcome of which was the innovative product ‘Loan Suraksha’, which combines an insurance policy with the loan so that the family does not lose the asset in case of anaccident befalling the borrower.
The next step was the establishment of Mahindra Rural Housing Finance Limited — a venture aimed specifically at financing improvements or repairs of modest rural homes, which according to Ramesh Iyer is its most socially impactful business, with huge potential.
Mahindra Finance also went international, setting up a joint venture with US-based De Lage Landen Financial Services, Inc., a subsidiary of Rabobank. A successful venture, Mahindra Finance USA has built a balance sheet of almost US$1 billion. And more recently, in 2019, a joint venture with Ideal Finance of Sri Lanka was formed to offer a diversified suite of financial products in that country. It primarily offers vehicles loans of every kind and focuses on the semi-urban and rural areas. It already has ten branches by now.
Mahindra Finance also forayed into asset management, with the formation of Mahindra Asset Management Company (now Mahindra Manulife Investment Management) —with a strategic focus on rural markets.
Agility is crucial to success, especially when consumer needs are fast changing. As Mahindra Finance, continues to expand its geographic reach and enhance the scale of operations, it has successfully developed and integrated technology and analytics into its solutions, to meet the needs of their unique customer set.
Over the years, Mahindra Finance has become an integral part of not only the Mahindra world but also the Indian rural landscape.
Redefining financial services for the rural customer
In an interview with India Now Business and Economy, Professor Vijay Mahajan, John P Harbin Centennial Chair in Business at the McCombs School of Business, University of Texas, referred to the unique Mahindra Finance business model. “Companies that plan to tap rural markets,” he said, “should understand that farmers do not have a weekly or monthly pay cheque. They generate income only when they sell their crops. And their income is heavily dependent on the weather. Businesses need to factor in this seasonality and take it into consideration while drawing up their business plans. In India, Mahindra Rural Housing Finance [a subsidiary of Mahindra Finance] has developed a mortgage plan for rural areas with adaptations for this cycle. Because farmers often lack the income documentation and credit history that banks require, Mahindra came up with other criteria…”
A deep understanding of the needs of the rural customer has been the key to transforming Mahindra Finance into one of India’s largest rural NBFCs. Mahindra Finance began its journey as a market disruptor, and is now the market leader. Its innovations and services are often tailored specifically for the rural customer’s needs.
Customer-led product innovation
A customer who seeks finance to buy a UV also has financing needs for other products. S/he would also like to go to a financier he or she trusts. This led to Mahindra Finance quickly expanding its finance product portfolio. After its initial foray in UV financing, the Company added tractor finance to its portfolio, which had its own challenges. One of them being that customers could repay loans based on the farming cycle, for which repayment schedules had to be customised. Since agri-based income is unstable, there is always the risk of multiple overdue and, hence, building a personal relationship with the customer became pertinent. For this, branches were opened in remote areas.
The Company soon went beyond Mahindra products, financing vehicles of other OEMs as well. By 2010, they became the preferred financier for Maruti. And went on to add several other OEMs and new product lines, pre-owned car finance, commercial vehicle finance etc. to the portfolio.
Leveraging digital disruption to deliver customer delight
As early as the mid-1990s, the team at the Thane branch of Mahindra Finance, worked from a ‘mobile’ office — only that their office happened to be a mobile vehicle, the Mahindra Voyager. Given that their daily tasks like meeting dealers, conducting field investigations and visiting customers to collect instalments kept them always on the move, the Voyager acted as a makeshift office in distant places. An early adopter of technology, Mahindra Finance was the first financial services company in the country to introduce handheld devices enabling collection executives to provide instant receipts to customers at their doorstep.
Mahindra Finance’s business today is delivered against the backdrop of India’s heartlands undergoing an unprecedented change, socially and economically. Improved communications (especially, mobile and Internet), reduced transportation costs, changing trade patterns for commodities and the emergence of non-farm activities in rural regions have combined to present rural India with a new set of challenges and opportunities. Mahindra Finance acknowledged these shifts and embarked on a digital transformation journey to redefine financial services and delivery mechanisms to its unique customer set.
Data-driven products and services
Over the years, the Company has built an in-depth knowledge of its customers with micro-data points ranging from income, payment behaviours, socioeconomic status and other indirect data. Given its widespread reach and multi-product portfolio, Mahindra Finance is uniquely placed to leverage the data captured over the last three decades to risk-rate customers better. The Company is successfully mining this data to build powerful machine learning analytics models extended through digital platforms for customer acquisition, collections, customer engagement and forecasting business trends.
MMFSL Bharat Maps, a proprietary data-driven financial and consumption map of India tracks consumption and lending patterns. Through this, Mahindra Finance can target micro-markets to reach out to new customers. Bharat Maps can also provide granular data points that include village level information of economic prosperity, industry lending activity, industry NPAs, irrigated land, healthcare centres, post offices, etc. Every new branch opened now, is intelligently driven through demographic data, satellite data, industry data and consumption data of six lakh villages of India.
Mahindra Finance has also launched Suvidha loans – an unsecured personal loan up to INR one lakh for customers. These offers are fully processed using internal machine learning models built over granular lending and consumption data of the last two decades.
Among the early adopters of blockchain technology, Mahindra Finance launched a vendor financing platform powered by blockchain -- the first Company in South Asia to use blockchain technology for supply chain financing. The blockchain connects suppliers, OEMs, and the financier, and allows them to share key data securely over the network chain to request and approve the financing.
Mahindra Finance has also successfully integrated various complex systems with new-age mobile platforms to build fully digital platforms for its customers and employees. The Company’s customer app ‘My Mahindra Finance’, with multilingual capabilities and its employee app empowers the team to boost operational efficiencies while enhancing customer delight through personalised experiences.
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