Makeover With A Phygital Model

In many ways, it would not be wrong to say that Mahindra & Mahindra Financial Services took financial inclusion with products such as housing financing, insurance, mutual funds and the like to rural India; in the process also joining the league of players that truly understand how consumers behave and what they demand in the deepest pockets of India. Continuing a journey of 25 years, where the company registered consistent growth, its focus now is to become ‘phygital’ in its presence and approach.  

“Very clearly, we have begun to invest heavily in data science, in digital and have created a vertical called Digital Finco as part of our growth strategy. We have to participate in the consumer’s lifecycle and not just stay with the products that we are in. These consumers need short-term, small-ticket loans for two-wheelers, consumer durables, for health and education needs and they are borrowing this in ad hoc ways,” explains Ramesh Iyer, Vice Chairman & Managing Director, Mahindra & Mahindra Financial Services. He explains that given the company’s customer base, penetration across India, and knowledge of the market, Mahindra Financial Services is looking to create products that can be delivered digitally rather than physically.

“We are transforming ourselves from a physical model to a digital model. But this is not to say everything will move to digital or stay physical; we are moving to a phygital model. In the next three years, you will see us become strong technology-wise, digitally and use meaningful insights from our database to develop new products for our consumers, while ensuring our core remains stronger,” he adds.

While this is going to be a large area of investment for the company, the other would be in its people capabilities. The financial company is also strengthening its branch network to “remain closer to customers”. “We will continue to remain the gateway for rural India. In three years, with these changes, we look to double our balance sheet,” says Iyer.

Robust Rural Play

Mahindra’s financial sector balance sheet is no small figure either, hence firmly keeping it in its group of ‘core businesses’ post the group’s recent reorganisation. “We began with one branch and five people, at about Rs 30-35 crore in 1994-95. Today, if all the assets in the financial sector are taken together, our balance sheet would be close to Rs 1,00,000 crore,” informs Iyer.

At its inception, Mahindra Finance chose to be in rural markets, as a service to finance the Mahindra vehicle. To understand consumer needs, Mahindra opened branches across India bringing its footprint to more than 1,400 branches today, covering all geographies, reaching more than 80-85 per cent of districts in the country.

“Our customers are spread across 4,00,000 villages. To understand them and speak their language, we recruit people from the local markets, making it easy for our employees to understand the challenges of our customers,” Iyer says.

In its journey so far, Mahindra has financed more than 7-8 million customers. The products it finances are not aspirational but necessities. These consumers’ livelihood comes from the vehicle, making Mahindra participate in the ‘earn and pay segment’ of the rural market. From financing vehicles, the company added products such as rural housing, insurance and even mutual funds, all to enable rural consumers to meet their livelihoods, safeguard their interests and grow.  “Many of our customers considered opening bank accounts after we spoke to them for financing. In a true sense, it is financial inclusion that we have been part of in the last 25 years. We have also been instrumental in taking the insurance product to rural India,” notes Iyer.
 
International Footprint Continues

Collaboration was always part of Mahindra Finances’ growth strategy. In its international foray, it took the JV route in the US and Asian markets as well. Mahindra Finance’s international footprint followed that of M&M’s. Mahindra Finance USA is a joint venture between Mahindra and Mahindra Financial Services and De Lage Landen Financial Services (DLL ) of the Rabobank Group.

“It has been a successful 10-year-old partnership. The balance sheet crossed $1billion. We have 12-13 per cent return on equity in that market and a 70 per cent penetration. We cover the whole of US and are looking at markets such as Canada, Brazil and Mexico where DLL has a presence, and Mahindra has a dealership outlet,” Iyer informs. This is a similar model that Mahindra Finance has for Sri Lanka.  Next on the company’s target is Bangladesh. Even though this is still in a project stage, the company sees this as a “real opportunity”.
 
Expecting A Good Festive Season

Mahindra Finance did face a tough first half of the year but surviving cycles has become second nature to the company. A broad trend for rural would be that the second half of the year is stronger due to festivals, weddings and with lesser climatic impact. “Historically, the non-performing assets pick up in the first six months and drop in the second half,” Iyer says.

He explains that rural has two streams of cash inflow – farm and infra. “If these do well, the consumption story begins. We believe the infra story will open up post-monsoon. All vectors are in place for rural to boom in the last quarter of the year,” he adds.

Festival is a real buying time for consumers in rural India. This year, once again, there is pent up demand due to the first half. This is among the reasons why Iyer believes demand will bounce back. “The monsoon was good and government actions have been very positive with road projects, mining, coal excavation and the likes opening up. We are optimistic about the time ahead,” he concludes.