The most destructive of all floods that Kerala faced in the last 100 years began on 72nd Independence day of the country. That day also marked the beginning of the 12 days of Onam festival, the largest consumer business season in the state of Kerala. By night of 16th Aug’18, it was clear that no one would be celebrating Onam this year. The flood waters destroyed everything in its wake- lives, homes, businesses, agriculture. 483 people lost their lives, 14.5 lakhs lived in relief camps, 57,000 hectares of agriculture was destroyed, more than 50000 houses were partially or fully destroyed. Without taking into account the opportunity loss for the businesses, the UN report on Post Disaster Needs Assessment finds that Kerala requires Rs 31,000 crores to rebuild the lost private and
If we consider the affected part of business as a percentage of the total, then one of the most impacted sectors was Microfinance. At Rs 5583 Cr outstanding (As on 31st Mar’18), Kerala Microfinance sector is the one among the top ten states in the country. In Jul’18, loans worth Rs 404.83 Cr was lent by the microfinance sector in Kerala. This dropped to Rs 148.69 Cr in Sep’18, a fall of 63% over the pre-flood days. KPB Fincare P Ltd (KPBF) also did not escape the vagaries of nature. In the initial days of the flood, with electricity and mobile network down, our immediate concern was to ensure the safety and wellbeing of our employees. We had multiple people assigned to track and contact each and every one of our employees, either directly or through their family and friends. Once we assured ourselves that they are safe, we took on a series of decisions to support customers and to ensure the portfolio quality remains unaffected over a longer period of time.
KPBF was launched in Mar’17, with an aim to provide innovative and efficient microfinance products and services to our customers through a completely cashless and paperless route. One important aspect we have always kept in mind while designing the processes and products is that the customer relationship is the most important factor in microfinance. In a company like ours, which is heavily dependent on technology to differentiate in the service offerings, there is always a chance to focus on technology overcoming the human element. But, being a post-demonetization child, we were able to learn from this mistake committed by few others and ensured that we gave supreme importance to maintain the connection with our customers and employees while building the technology layers.
This people-centric approach was at the forefront of our flood impact mitigation strategy. A detailed assessment of the impact of floods on our customers was conducted in the initial days itself. Based on severity, the impact was measured on their property loss, business loss and employment loss. We found that 31% of our customers were affected due to flood waters and another 29% were affected due to unemployment issues. Based on this finding, to support our customers to get back to normalcy, the company gave a loan repayment holiday for one month to the affected customers. During each day of this one month period, our team visited the customers to reassure them that the company is there to support them. During this period, our field team became one among them by helping to clean their homes, rearrange their materials, or by helping to channelize the aids from NGOs/individuals to the affected customers. More than anything else, this human element gave succor to our customers. In their words, it gave them hope to rebuild their lives once again. It also deepened their relationship with KPB Fincare, as they understood that the company would stand with them at all times.
The positivity created by the interactions could be gauged from the fact that 100% of our customers started paying their regular dues at the end of the repayment holiday. As our customers rebuild their lives, we are optimistic that the future is bright for them and the state of Kerala
At the same time, the floods caused a dilemma for us- whether or not to lend fresh loans to flood-affected customers who are having arrears with other microfinance companies? On one hand, there is a demand for loans to rebuild their lives and on the other side, such lending would further push the customers to indebtedness and also violate the credit discipline. For any collateral free lending sector, destruction of credit discipline would be suicidal. As the government came out with interest-free loans to affected families in Kerala, with amounts much higher than microfinance loans, KPBF took a stand not to lend to customers who have arrears with other microfinance companies. We explained to our customers, how over-indebtedness at this juncture would be detrimental for their families’ wellbeing. When they are struggling to repay existing loans, it would be suicidal to borrow more money. It was a painful decision to take. There are companies who took the other path, including some who disbursed education loans (In the month of October) to such customers. The question this throws open is- if multiple such institutions push microfinance loans to the same flood affected the customer, would the customer be better off than at the beginning? Would the destruction of the credit disciple for the sector be a good price to pay for any short term gains in the portfolio size for a company?
One solution to the above issue is for the sector regulators/SROs to come out with a well-defined emergency loan product, which shall have the same nomenclature across institutions. The regulator could mention the maximum loan amount that could be issued to a customer by all companies put together as well as any relaxation in rules. This will help other companies to identify from the credit bureau data whether such emergency loan has been disbursed to a customer and if the limit has already been exceeded, then no further emergency loans would be provided to the customer till the arrears are cleared. This will serve the dual purpose of supporting the customer while ensuring that the family is not pushed to over-indebtedness. The restriction in the number such loans that could be given to a customer would also mean that the companies would try to push these loans faster to the customers, before the lending window closes, thus benefiting the customers.
Each crisis helps us to grow stronger. Microfinance has weathered many of them and has emerged stronger after each one. This one will also pass, but the lessons we learn would be what take us far.
About the Author:
Krishna Chandran COO of KPB Fincare (P) Ltd. He has extensive experience in development management and microfinance sector.