Mahindra Finance was set up as Maxi Motors Financial Services Limited in 1991 to finance M&M Auto Sector’s utility vehicles in rural and semi-urban areas. In 1993, its name was changed to Mahindra & Mahindra Financial Services Limited. Today, it is the largest tractor financier in the country and the largest NBFC financier for Mahindra UVs, Maruti and Hyundai cars.

Mahindra Finance commenced its business in a scenario when the spread of banks was low and the percentage of people being catered to by the banks in rural and semi-urban areas was even lower. While banks offered lower interest rates, they had stringent norms and documentation process, so even people who had access to the banks didn’t always manage to get a loan. This forced the customers to turn to moneylenders, who didn’t insist on any documentation but their interest rates were higher than banks and loan terms were also not regulated. There was a huge gap between moneylenders and banks, waiting to be filled. Mahindra Finance seized this opportunity by positioning itself between the organised banking sector and the moneylenders in rural and semi-urban India.

Challenge

More than 80 per cent of its customers belong to the low-income category:

• They don’t possess collaterals or past credit records and documents.
• First time buyers of vehicles/assets – these assets are not for personal use, but are their source of livelihoods.
• They are not sub-prime customers but their credit worthiness is not easily visible or measurable.
• Mahindra Finance fulfils this gap by its unique “Earn & Pay” business model. They use the asset under loan to earn from it. It extends vehicles/tractors financing to low-income groups to help them earn from these vehicles/tractors.

Solution

• Deep Reach – With 1,100 offices across India with 75 per cent being located in rural and semi-urban areas, it has made deep inroads into rural pockets. It has set up Service Branches in remotest of areas to provide financial access to people.
• Capability and Empowered Decision-making – By lending to credit deprived entrepreneurs, Mahindra Finance is creating “Credit Worthiness” as opposed to assessing “Credit Worthiness”. It devised new methods to assess the income, e.g., inquiring from informal and qualitative sources like neighbourhoods and local authorities to help determine repayment intent and attitude. Key innovation was to develop the ability to assess a customer’s cash flow, to determine whether he can earn sufficiently by deploying the asset in order to pay his installments and retain surplus to improve his standard of living. As credit worthiness was being assessed at a local level, a field force was created, which was empowered to take credit decisions. This capability of rural understanding has led to several innovations in its products. There are flexible repayment options based on a customer’s cashflow. Customers having a seasonal cash flow can avail quarterly, half-yearly or even yearly repayment options.
• M&M Parentage – Having Mahindra in the brand name helped rural customer identify with the brand. By being in constant touch with the dealers and OEMs, it has been able to create deep-rooted relationship with them, which has helped it in getting positioned as a preferred partner to their customers.
• Treasury – Good treasury controls and relationships with banks and other FIs has let Mahindra Finance borrow at good rates and it has a strong Asset Liability Management.
• Local Employment – Through its presence in 25 states and 5 union territories and by employing the local population, Mahindra Finance is able to bring in the local market knowledge, which helps in creating products and services suited to the customers’ needs.

Through various direct marketing initiatives like Gram Sabha, Shikhar Sammelan, Sparsh, Loan Mela, Mandi Divas, Go Direct activity etc, Mahindra Finance has been able to engage and educate the customers about the latest schemes and offers.

60 percent of Mahindra Finance customers earn and repay in cash. To make loan transactions convenient and transparent, Mahindra Finance uses hand-held devices to serve customers at their doorstep.

Benefits

Mahindra Finance has consistently maintained a CAGR of 21.95 per cent over the last decade for the estimated value of assets financed. With customer contracts growing at a CAGR of 26.8 per cent over the last decade, it has empowered and transformed the lives of as many as 4 million customers across more than 2.7 lakh villages.

In 1991, as Mahindra Finance tapped the rural market, it not only helped in financing the target group but we also enabled to build their credit history. This has helped many banks and other financial institutions to reach out to them. Thus, in a way it has worked towards financial inclusion by providing easy access to loan products resulting in empowerment of rural India.