Encouraged by the recent judicial pronouncement of the Telangana High Court, microfinance lender Muthoot Microfin Ltd (MML), which is part of Muthoot Pappachan Group, plans to enter Andhra Pradesh and Telangana markets this year, its Chief Executive Officer Sadaf Sayeed said.

“We will enter Andhra and Telangana in a calibrated manner. We will definitely open 50-60 branches in these two States in the next one year,” Sayeed told businessline.

Microfinance crisis

This will be re-entry into Andhra Pradesh for the microfinance business after its exit in 2010. It maybe recalled that the Andhra Pradesh microfinance crisis of 2010 had a big impact on the microfinance industry in India.

The crisis began when the government of Andhra Pradesh introduced a law that regulated the operations of microfinance institutions (MFIs) in the State. The law aimed to protect borrowers from high interest rates and coercive recovery practices employed by some MFIs. However, the implementation of the law had unintended consequences.

To address the crisis, the Reserve Bank of India introduced a set of guidelines for the microfinance industry in 2011. The guidelines aimed to ensure responsible lending and borrowing practices, and also provided a framework for the regulation of the industry.

Recently, the Telangana High Court ruled that States cannot control MFIs regulated by the RBI. “This judgement (High Court ruling) is a welcome one for us. As an association, MFIN was fighting this for the last 10 years. Now the environment is pretty safe”, Sayeed said, when asked if the company was taking a risky bet to enter these two States. 

Robust demand

Sayeed said that demand for microfinance is now robust in both Andhra Pradesh and Telangana, going by “what we are hearing from the ground”.

Sayeed also said that MML, which currently has asset under management (AUM) of ₹9,300 crore and customer base of 2.7 million, is hopeful of recording 25-30 per cent growth in AUM on a sustained basis. 

Last fiscal, the company’s AUM grew 45 per cent. Sayeed said the company plans to leverage technology for growth, noting that currently 1.3 million of its overall customer base have already downloaded the dedicated app. “Over six lakh of this 1.3 million are using the app every month to undertake transactions,” he added.

IPO plans 

Sayeed said that MML does plan to tap the public markets with an initial public offering (IPO). “We have aspirations to do IPO. But will go for it when the environment is a bit more conducive. We are in a sense of readiness and whenever there is a window we will tap that,” he said.

Sayeed, however, made it clear that the company was comfortable on the capital adequacy front and would not be looking at IPO as source of growth capital. 

Currently, two marquee investors, Greater Pacific Capital (PE fund) and US-based Creation Investments Capital Management, an alternative investment company, in aggregate, control about 26 per cent stake in MML.