'India Is A Key Growth Market For The Home Credit Group'

Home Credit is a leading consumer durable loan and two wheeler finance provider that offers easy, simple and fast loans to consumers who want to progress in life. Pavel Maco, CEO, Home Credit India discusses their India business with BW Businessworld.

Please tell us a little bit about Home Credit and its business in India. Who would you count as your key competitors, and how do you differentiate your proposition viz-a-viz theirs?
Home Credit is one of India's fastest-growing Non-Banking Financial Companies (NBFC) that enables progress through consumer loans, primarily to first time loan takers. We launched our operations here in 2012 and currently operate in 50 cities across 14 states in the country, and provide loans for Mobile phones, laptops/ tablets, home appliances and two wheelers. So far we have provided services to over 1.7 million customers. Our target for 2016 is to hit 2 Million customers. The company has a strong network of nearly 7,000 Points-of-Sale (PoS) and by end of 2016, we aim to have a network of 10,000 POS.Talking further about our business in India, I would like to point out that over 70 per cent of our customer base is first time loan takers. We assist them to take the first safe lending experience with a regulated financial company and we also help them build and strengthen their credit scores.

Coming to our competitors, we believe that no organization operates in a market without competition. Having said that, let us reiterate that Home Credit operates in a space that not many NBFCs have entered in India and elsewhere. As already shared, over 70 per cent of our current customer base is first time loan takers and the average ticket size of a loan is approximately Rs 10,000. We provide simple and safe finance solutions for the everyday Indian who has tremendous dreams, aspirations and the drive to achieve them.

What led to Home Credit deciding to enter the India market? What's your business plan in a nutshell, what's the quantum of money the group has committed to its India ops, and by when do you plan to start turning a profit?
India is a key growth market for the Home Credit Group. Till now, the Group has invested in expanding the India business and will continue to support this growth. A report by Credit Suisse states that the Indian consumer finance market is expected to grow at a compounded rate of 18 percent and become a $1.2 trillion opportunity by 2020.With a population of over a billion that is largely financially underserved, we believe the potential of the India story is tremendous. There is a big customer base outside of the regular banking sector. There are several NBFC (Non-Banking Financial Company) players in the Indian market and that is a good thing. Among our 1.7 million customers so far, 70 per cent are taking loans for the first time in their lives. Home Credit aims to reach out to first time borrowers, who have been largely ignored by banks and other financial institutions. By providing loans to this segment, we are enabling a young professional to buy his first smartphone, or a middle class family buy their first LCD television, or a small business owner purchase a two wheeler that helps his reach out to more customers. This is the new progressive and aspirational India that Home Credit aims to enable progress and grow the consumer finance market.

The Home Credit Group has so far invested vastly in the India operations and sees value in supporting the business expansion and growth. We see the next couple of year as capital-intensive as we expand our network further and strengthen our business. We hope to break even by FY 2017-18.

How do you see the role of technology/ FinTech impacting the retail lending business going forward?
Technology is the backbone of our business model. From critical processes like Underwriting and Risk assessment to the support to every function of our business, IT is at the very core. Leveraging on the online space is also a top priority for our company and we are looking to make a foray into the online loan disbursals shortly.

Currently, which stores have a Home Credit PoS? How do you evaluate and decide upon which tie-ups to make and which ones to pass up?
The Home Credit model is based on a strong network of partners that may not be the typical large-format stores, but are neighbourhood mom-and-pop stores. This helps us make our services available to our customers at a place of their convenience and comfort. Especially when it comes to a first time loan taker, we believe that easy of access and comfort with the retailer play an important role building the customer's confidence and trust.

Home Credit provides in-store financing to retail customers, who are often first-time borrowers. How do you strike a balance between asset quality and customer experience? Have you had issues with bad loans thus far?
Home Credit provides simple and fast finance solutions to customers who want to progress in life. Since many of Home Credit's customers are first time loan takers, our first responsibility towards them is to hand-hold them through their loan journey. First up, HC's loans are completely flexible. The customer selects his EMI and loan term based on his affordability and financial comfort. In addition, we ensure that a loan is safe on our customers' side by always helping them to make a simple and clear assessment of their own disposable income and credit capacity, including a generous buffer to cover unexpected life events. Even before applying for loan we encourage prospective customers to check their affordability for a loan on our website, so as to plan their personal finances and make an informed decision. While taking a loan, we ensure customers know all details relating to their loan such as loan amount, interest rate offered, no. of instalments, due date, processing and repayment procedures, that are listed in a Loan Summary document handed over at the time of signing on for a loan. To help ensure customers make the right borrowing decisions based on their own circumstances, Home Credit offers customers a cooling-off period as standard across all our operations: up to two weeks after signing a loan contract with us, the customer can reconsider his or her decision and withdraw.

At Home Credit, we have prudent underwriting policies as well as effective customer authentication mechanisms that help minimize risks. Additionally, our collection strategies including reminder calls to customers to help them repay their loans on or before the due date, helps ensure our portfolio stays healthy. Having said that, NPLs (Non-Performing Loans) are a part of the consumer finance business, and having processes and strategies in place for risk mitigation help keep the numbers in check. While we do not take collateral for consumer durable loans, our average ticket size being around Rs. 10,000, helps keep our portfolio diversified and hence mitigate risks of high NPLs.

What's your evaluation and approval process and typical TAT? What quantum of loans has Home Credit advances thus far?
Home Credit's core competency is our Risk Assessment and Underwriting processes. Over decades of time and across economies that are both evolved and developing, we have developed the "secret sauce" of assessing a customer's affordability for the loan and ability to repay it in a timely manner. Today, to apply for a Home Credit loan, all you need is a valid address and identity proof document and in certain cases, valid income proof. These two documents give us a fair idea in a few minutes if a customer is eligible for a loan. Since we began business in India, we have served over 1.7 Mn customers, and we expect this number to hit 2 Mn by end of 2016.

Prior to joining the India business, you ran Home Credit's operations in Kazakhstan. How are the two markets different, and which one is more challenging?
While language and culture and challenges may vary in our markets, customer behaviour remains largely similar. In Kazakhstan and China, when we began our business, we initially faced challenges of sourcing credit history of customers. What we learnt in these markets initially, helps us do business in India. Added to this, the bureau in India is more evolved and strong. These experiences from various markets have helped us in India. In India RBI is extremely efficient and the world class services like Aadhar card (and e-KYC) have assisted us a lot.

"Being Entrepreneurial" is one of your company values. How do you encourage your employees in India to live these values? Is it not a challenge to balance out an entrepreneurial culture with what essentially needs to be a highly process oriented, structured business?
Home Credit is driven by four core values; Being Entrepreneurial, Focussed on results, Innovative and Fair. To us, these are not lip-service, but form the DNA of the organisation. It's demonstrated through what we do and how we behave as a global leader in responsible lending and a fair employment. Being Entrepreneurial is about a mind-set of empowering our people to take calculated risks in the business, to solve business challenges creatively and to inculcate a sense of ownership in the business. Having said that, our systems and processes form the framework and guidance to conduct business efficiently.

Lastly, please tell us a bit about Home Credit India's growth plan for the next five years. Currently, most of your senior team consists of nonlocals. Do you plan to add professionals with local experience to your senior team in the times to come?
In the last few years, the NBFC (Non-Banking Financial Institution) sector in India has seen tremendous growth. From just a couple of players in the sector a few years ago, the sector is seeing the emergence of new players. In the next five years, the NBFC sector will expand further and will roll out quantum of employment opportunities across various divisions. New players, new geographies, new business models and huge cross-selling opportunities will be seen. There is a lot of flexibility in the Indian market.

We are executing and developing quite a few new plans for this market. And now the online market is also growing fast in India. That is why we are planning for online loan disbursement in the coming months. We might roll out online loan distribution system in India from next year. As mentioned earlier, India is a key growth market for the Home Credit Group and we predict that 2017 onwards will be a really big and promising time for us.

As for senior management, we believe in growing and nurturing talent from within the organisation. Home Credit does business differently, and as India is a relatively new market, we currently have senior management who have spent time understanding the business in our group countries, transferring the knowledge to the team here. At the same time, we are nurturing local talent and would be happy to see in the near future, that local talent has spent time with the business and is ready to take on the reins, as it has happened already in our more mature markets.