Gold Finance- Thomas Gold Finance- Thomas MuthootMuthoot

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COCHIN – Five hours north of Kerala’s COCHIN – Five hours north of Kerala’s political capital of Trivandrum, political capital of Trivandrum, passing through mirrored passing through mirrored chessboards of rice fields and palm-chessboards of rice fields and palm-lined canals criss-crossing the lined canals criss-crossing the terrain, is Kerala’s economic and terrain, is Kerala’s economic and cultural capital. cultural capital.

Cochin has been a hub of trade for Cochin has been a hub of trade for centuries, linking the Greeks and centuries, linking the Greeks and Romans to the Chinese and later the Romans to the Chinese and later the Portuguese, Dutch, and British all Portuguese, Dutch, and British all hoisted their flags atop their spice hoisted their flags atop their spice ships in its serene harbor. ships in its serene harbor.

The lovely city also host’s Muthoot The lovely city also host’s Muthoot Pappachan’s corporate headquarters. Pappachan’s corporate headquarters.

The Muthoot family and family of The Muthoot family and family of companies has been the backbone of companies has been the backbone of financing Kerala’s economic and financing Kerala’s economic and infrastructural development, dating infrastructural development, dating back to when the region was known back to when the region was known as the Kingdom of Travancore under as the Kingdom of Travancore under the British Raj. the British Raj.

Today, Thomas Muthoot continues in Today, Thomas Muthoot continues in his family’s legacy of economic his family’s legacy of economic development, especially for those development, especially for those who face barriers to entry restricting who face barriers to entry restricting their financial inclusion. their financial inclusion.

I sat down with Muthoot FinCorp I sat down with Muthoot FinCorp Executive Director, Thomas Muthoot, Executive Director, Thomas Muthoot, and COO Sadaf Sayeed to discuss their and COO Sadaf Sayeed to discuss their forays into the microfinance space, forays into the microfinance space, their current relationship with ACCION their current relationship with ACCION delivering delivering Dialogue on BusinessDialogue on Business to to their clients, and the direction they their clients, and the direction they envision for our partnership. envision for our partnership.

The Muthoot-ACCION partnership The Muthoot-ACCION partnership began three years ago, just as they began three years ago, just as they were beginning their microlending were beginning their microlending business. business.

Another one of our industry’s Another one of our industry’s “Big Six”“Big Six” (not ACCION) helped (not ACCION) helped Muthoot Pappachan set up their Muthoot Pappachan set up their microlening business. Once they microlening business. Once they were ready to lend, they needed to were ready to lend, they needed to attract clients. attract clients.

Entering a saturated market, Entering a saturated market, Muthoot wanted to differentiate Muthoot wanted to differentiate themselves from other MFIs. themselves from other MFIs.

Thomas saw two avenues and both Thomas saw two avenues and both have been met with initial successes. have been met with initial successes. First, (I concluded an First, (I concluded an earlier postearlier post alluding to this avenue) since alluding to this avenue) since Muthoot cannot hold savings for their Muthoot cannot hold savings for their clients, they have found another clients, they have found another unique way to generate savings for unique way to generate savings for asset accumulation. asset accumulation.

Enter the gold coin. They have Enter the gold coin. They have devised a program where the devised a program where the borrower would pay a little extra borrower would pay a little extra each week in addition to her loan each week in addition to her loan repayment, and at the end of the 52-repayment, and at the end of the 52-week cycle, she will be issued 1g of week cycle, she will be issued 1g of gold. gold.

Muthoot has streamlined their Muthoot has streamlined their operations to the point where, even operations to the point where, even including the extra weekly payment, including the extra weekly payment, the effective interest rate the women the effective interest rate the women pay is lower than their competitors. pay is lower than their competitors.

In this way, the bank is helping their In this way, the bank is helping their clients save for a desirable fungible clients save for a desirable fungible asset, and the opportunity to reenroll asset, and the opportunity to reenroll in the gold coin program keeps them in the gold coin program keeps them coming back. coming back.

The second avenue Thomas The second avenue Thomas envisioned differentiation was envisioned differentiation was through entrepreneurial training. through entrepreneurial training.

Enter ACCION. Sadaf began, “All this Enter ACCION. Sadaf began, “All this started as a CSR initiative of started as a CSR initiative of Muthoot. Muthoot.

SthreejyotiSthreejyoti training makes an effort training makes an effort to build our client’s skills and to build our client’s skills and manage their businesses well. manage their businesses well.

This is what attracts and This is what attracts and differentiates us from other MFIs”. differentiates us from other MFIs”. Thomas followed, “Unlike other MFIs, Thomas followed, “Unlike other MFIs, we want to bring other valuations to we want to bring other valuations to our customers. our customers.

It’s not just giving money and getting It’s not just giving money and getting it back on time. We want to give it back on time. We want to give them support. In a way it helps us them support. In a way it helps us engage the customer at different engage the customer at different times, other than the weekly times, other than the weekly collection time”. collection time”.

He continued, “We want to ensure He continued, “We want to ensure that, in the long term, we are seeing that, in the long term, we are seeing that they come up the ladder also.” that they come up the ladder also.”

Essentially this one-two punch of the Essentially this one-two punch of the gold coin program to get the gold coin program to get the customer in the door and customer in the door and SthreejyotiSthreejyoti training helps Muthoot attract and training helps Muthoot attract and retain business. retain business.

Both Thomas and Sadaf are Both Thomas and Sadaf are anxiously waiting and working anxiously waiting and working through the coming critical six through the coming critical six months. months.

By the end of the year Muthoot and By the end of the year Muthoot and ACCION will finalize relationships, ACCION will finalize relationships, buy-back agreements, and other buy-back agreements, and other market linkages with market linkages with NABARDNABARD (India’s national Development Bank) (India’s national Development Bank) and and ROPEROPE as well as review the as well as review the anticipated anticipated DialogueDialogue impact impact assessment.assessment.

The coming NABARD linkage would The coming NABARD linkage would ensure the Muhtoot is handholding ensure the Muhtoot is handholding their clients on end-to-end delivery; their clients on end-to-end delivery; from loans to education to from loans to education to production to market. production to market.

More important, Muthoot is waiting More important, Muthoot is waiting on the assessment results to verify on the assessment results to verify SthreejyothiSthreejyothi is truly making a is truly making a positive impact. Sadaf stresses, “A positive impact. Sadaf stresses, “A study has to come out and show it’s study has to come out and show it’s a difference maker. a difference maker.

Thomas and I totally believe in this, Thomas and I totally believe in this, but for other people (I was reading but for other people (I was reading between the lines: investors, donors, between the lines: investors, donors, policymakers, academics) to policymakers, academics) to understand, there has to be a understand, there has to be a quantifiable number.” quantifiable number.”

Nonetheless, Thomas and Sadaf are Nonetheless, Thomas and Sadaf are very pleased with their partnership very pleased with their partnership with ACCION for reasons beyond with ACCION for reasons beyond bringing bringing SthreejyotiSthreejyoti to their clients to their clients and the ROPE linkage and envision and the ROPE linkage and envision their relationship becoming more their relationship becoming more meaningful and focused down the meaningful and focused down the road; road;

for example, “Modifying the modules for example, “Modifying the modules or delivery methodologies, Accion or delivery methodologies, Accion should be there. Or if we are should be there. Or if we are targeting a new set of clients, targeting a new set of clients, artisans, a specific cluster of artisans, a specific cluster of entrepreneurs, in those situations we entrepreneurs, in those situations we will use ACCION’s expertise.” will use ACCION’s expertise.”

Both Thomas and Sadaf were Both Thomas and Sadaf were realistically prudential in their vision realistically prudential in their vision for the future of the program. for the future of the program. Thomas envisions, “At least 5% of Thomas envisions, “At least 5% of women becoming women becoming realreal entrepreneurs. entrepreneurs.

We have trained about 8000 women We have trained about 8000 women and it’s our hope that 500 would and it’s our hope that 500 would become successful entrepreneurs.” become successful entrepreneurs.” Sadaf continues, “A real Sadaf continues, “A real entrepreneur means she is entrepreneur means she is independent and can manage her independent and can manage her business on her own. business on her own.

We want to create and promote We want to create and promote entrepreneurship. So if we saw at entrepreneurship. So if we saw at least 5% become real entrepreneurs, least 5% become real entrepreneurs, we have been a success.” we have been a success.”

On that note I presented seven client On that note I presented seven client stories, including some of my stories, including some of my favorites like Munni’s beedie favorites like Munni’s beedie business, Usha’s hopeful expectation business, Usha’s hopeful expectation for a loan to scale up her chapati for a loan to scale up her chapati enterprise, and the sudsy enterprise, and the sudsy Trivandrum-tragedy. Trivandrum-tragedy.

Sadaf will lead a feasibility study on Sadaf will lead a feasibility study on market conditions and hopes to market conditions and hopes to deliver Usha a chapati machine. deliver Usha a chapati machine.

Thomas suggested the ladies in Thomas suggested the ladies in Trivandrum start a laundry service. His Trivandrum start a laundry service. His recommendation brilliantly summed up recommendation brilliantly summed up the type of creative and the type of creative and entrepreneurial thinking that Muthoot entrepreneurial thinking that Muthoot wants to foster in their clients: to work wants to foster in their clients: to work with what they have and Muhtoot will with what they have and Muhtoot will provide counsel along the way. provide counsel along the way.

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