MANAPPURAM FINANCE

Thrissur-based lender against gold collateral. Promoted by P.H. Nandakumar
Secret Sauce Low-cost, high-speed working capital lending against one collateral most Indians have: Old gold ornaments.
Financial Dashboard Sequioa Capital invested in 2006 at Rs. 130 a share. UK-based fund Ashmore-Alchemy invested a year later at Rs. 170 a share. Today, the share price is Rs. 677.
What the Smart Set Saw Lending to customers who aren't necessarily poor but who would never access a bank. All lending backed by gold!

Lending against gold is an age-old business and at the face of it quite simple. After all, what does a lender do? He assess the value of jewelry and gives out a loan on a substantial portion of its value. Theoretically, then, this should be a totally commoditised business. But then, there are some like Manappuram Finance that take it a professional notch higher.

 

Till 2006, the business trudged along with a growth rate of around 15-20 percent per year. Then in 2006, something changed. ICICI Bank saw a potential in bankrolling entities who were reaching out to the unbanked. And Nandakumar decided to step on the gas. He borrowed to boost his lending capacity, but also raised equity to keep a leash on his own gearing. As a result, Manappuram's network has grown from 50 branches in 2006 to almost 900 branches today.

 

Nandakumar likes to keep each branch very small and leanly staffed. When the business grows, he doesn't go for a bigger office but opens a new branch. "Our aim is to give a loan in five minutes. Today. it takes about 10-15 minutes still. We want to cut that down," says I. Unnikrishnan, president.

 

The gold lender's costing is his advantage. "Assume 20 minutes for a loan. So 25 loans a day? Assume 20,000 loan size. That's just Rs. 5 crore business. My costs are less Rs. 2 lakh per branch. It would be hard for a bank or even an NBFC to keep their costs so low," says Unnikrishnan. So players like Fullerton, Reliance Money, Shriram Chits and even Mahindra & Mahindra Finance tried getting into the gold loan business but haven't been able to scale up.

 

What's next? "There is no reason why can't grow to 2,000 or 3,000 branches across India. After all, gold is there in almost every Indian household." Ask Nandakumar whether he sees any risks and pat comes the reply: "Yes if the price of gold falls to zero then we are in trouble."