An NBFC who wants to be a wealth manager of rural India
Dvara Holdings has been in the financial inclusion business since 2008 in an attempt to achieve financial inclusion in India, especially in the rural segment. According to Samir Shah, Executive Vice President and Co-Founder of Dvara Holdings, the company aims to be India’s first “Venture Studio” – an incubator for innovative technology-driven initiatives to improve the reach of household financial services. low income across the country. Excerpts:
Q. Dvara has been in operation for over a decade. How did you pivot to financial inclusion with a deeply rural focus?
A. Dvara Holdings was formed when Nachiket Mor and Bindu Ananth along with some bankers from ICICI Bank left the bank in 2008 and started what was then called IFMR Trust. It later became Dvara Trust and is now known as Dvara Holdings. It was set up to try to achieve financial inclusion in India, in a much more meaningful way. The founding team realized that the traditional banking model can go that far but not really deep as it will have limitations in operating costs, reach, distribution, etc. So the traditional bank will achieve a bit of financial inclusion, but you can’t really go deep into financial inclusion just because of the nature of a bank that serves different types of businesses and customers, it’s just impossible to obtain this deep concentration.
The second thing that was sort of a very early realization for the founding team is that to achieve true financial inclusion, you can’t just provide financial services to the excluded or to households at low income, but you also have to do a lot of in-depth policy work, partner with regulators, and actually make changes in policy thinking and regulation. So, very early on, we started by saying that we were going to do both types of activities.
We will incubate and build new business organizations, financial services organizations that are social enterprises, focusing on low-income households across the country to enable access. On the other hand, we will also work with regulators to help them understand what kind of framework is needed, what kind of policy changes are needed to be truly customer-centric in financial inclusion.
Q. So how did you manage to balance the two areas of activity?
A. We established four institutions in 2008. Three of them were commercial institutions, two of which are NBFCs – Dvara KGFS, Northern Arc; one is a technology company – Dvara Solutions; and we created a non-profit policy research and advocacy company – Dvara Research.
In the second phase, we included four fintechs in our fold – Dvara E-Registry and Dvara E-Dairy which operates in the rural segment. Dvara SmartGold and Dvara Money are fintechs that help improve the credit profile of low-income households across all segments by instilling the habit of investing small amounts in gold, digitally, and maintaining financial hygiene gig economy workers by encouraging them to file taxes regularly and benefit from a wider range of financial services.
Q. One of your NBFCs is Dvara Kshetriya Gramin Financial Services (KGFS), which works in the rural segment. How is it different from any other NBFC that works in rural areas for the purpose of financial inclusion?
A. Dvara KGFS is a deep rural NBFC. The vision of this NBFC is to be the wealth manager for rural India. It goes beyond lending. Typically, NBFCs only focus on lending, but we go beyond lending. In fact, we are developing a financial plan for rural households. Much like you and I would go to a banker or a wealth manager, who would work out some sort of financial plan for us, Dvara KGFS takes this approach for rural households and develops a financial plan for the rural household using a deep understanding of the kitchen ware.
We digitize this financial plan and offer products and services tailored to this particular household, including credit, savings, insurance and retirement instruments. We have half a million active customers, approximately 295 branches, we’re profitable, we operate in six states, and we’re very digital and tech savvy. In early 2021, Dvara KGFS applied for a Small Finance Bank (SFB) license and we hope to be able to upgrade this NBFC to SFB soon, subject to RBI approvals.
Q. Are these entirely rural households? And what types of products do you offer to these households?
A. They are all 100% rural households. And not just rural, they are deeply rural. We currently serve around 10,000 villages, including those where the population might be around 1,000 to 2,000 villagers. About 33-35% of our customers are Dvara KGFS customers only, due to the remote nature we operate in, no one else serves them. The type of products we offer them are loan products which are the standard products of MFIs. We also offer savings instruments, insurance and pension products and payment products. We do not sell at random and this must be in accordance with Dvara KGFS Financial Wellness Report.
Q. How do you take advantage of technology while working in rural or agricultural space?
A. We have two fintech companies focused on the agricultural space. Dvara E-Dairy operates in the dairy segment while Dvara E-Registry is aimed at smallholder farmers. The dairy segment is a very interesting segment. All loan and insurance companies need cows to be identified for which RFID is used, which is not completely foolproof and can be easily faked.
Using artificial intelligence, we have created an Aadhaar equivalent for cows. Our hypothesis was that the cow’s nose, which is called the muzzle, is a unique imprint of that cow. We created an AI-powered mobile app that captures muzzle images, associates them with the unique digital identity stored on a secure cloud server, and retrieves the required information in less than a minute. We have partnered with IFFCO Tokio, ICICI Lombard, Jana Small Finance Bank and are in advance talks with other major lenders and insurance companies to provide this service.
Meanwhile, Dvara E-Registry has developed a mobile and web-based platform called Doordrishti, which enables farmers, FPOs and partner institutions to leverage traditional and alternative data to digitize farmer and FPO lands, l commercial activity and supply them with agricultural and crop-specific products. and services.
The Small Farmers’ Agri-Business Consortium (SFAC), which is promoted by the Ministry of Agriculture and Farmers’ Welfare, has established Dvara Trust as a Cluster Based Business Organization (CBBO) to train agricultural producer organizations (OPF) under the central sector scheme. Following this incorporation, Dvara E-Registry will establish FPOs in Maharashtra and Rajasthan.
Q. It is often said that rural households are very quick and very responsible when it comes to repaying. Has this changed during the pandemic?
A. Correct. Although these are poor households, they are extremely quick to repay their loans. Our average cost of credit before the pandemic was less than 1%. This means that our default rate, the NPA rate before the pandemic was less than 1%. We traditionally had a collection efficiency of 99.5%.
The pandemic has changed this equation a bit and our default rates have slightly exceeded 10%. But they are now starting to stabilize. Our regular collections again achieved a collection efficiency of 98%.
We have restructured certain loans in line with RBI restructuring guidelines. These households may take about a year to repay the few IMEs that have become unpaid in the past 12 months. But on an ongoing basis, we are already at 98% collection efficiency, which is phenomenal given the situation.
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