As the holding company of the Basix Group, Bhartiya Samruddhi Investments and Consulting Services Ltd is largely associated with microfinance. Therefore, it is not surprising that one of the first ventures of the group, which started its journey way back in 1996, was a microfinance NBFC and its MFI loan book soared to Rs 1,800 crore by 2010. With geographic concentration in its home state, the firm subsequently figured among the big casualties of the regulatory clamp by the government of Andhra Pradesh, the epicentre of the MFI industry. Two years down the line with banks agreeing to restructure its loans, Basix sees a light at the end of the tunnel – not just in growing back its MFI business but also from its newer business verticals. In an interaction with VCCircle, Vijay Mahajan, founder of the Basix Group, discusses how the bounce-back plan hinges on bringing stability to existing businesses, new opportunities, how Africa sits on his mind and more. Here are the excerpts:
Basix has finally got its restructuring done. Can you tell us how the group looks now in terms of loan book and balance sheet?
We have just about finished the corporate debt restructuring. So right now, the company is in freeze mode. And from here, we cannot go down any further. Remember that we have come down from Rs 1,800 crore (loan book) to Rs 124 crore. But to go back there from Rs 120 crore odd, it has to be underpinned with equity and equity will not come so easily as there is already Rs 500 crore of bank money sitting as the equity. So whoever puts in the money now, will get diluted on arrival. Basically, the answer is to earn more fee-based income, recover some of our past bad debts if we still can, and slowly improve the balance sheet and then build it.
Big restructuring not only means significant dilution for investors but also for you…
But for me, Basix is not just a company; it is my life. Irrespective of what state it is in, I will continue to run it and I am very thankful to the banks for converting a huge amount into equity. The fact that the company you know, is now 92 per cent owned by the banks, does not demotivate me in any way because I was doing it for the public purpose. It is definitely a problem for the investors who have lost a lot of their money but I hope they will understand and support us in the future.
The most important thing is, of course, whether the Andhra Pradesh government will change its policy and permit just two things: One is to allow us to go and ask our borrowers for our money back; the second is to allow us to give fresh loans. These two are now prohibited under the law. But if these two things are permitted, I think the poor will be happier; we will be happier; the banks will be happier. We have lost 7,000 employees who had to go and many of them will get their jobs back in such a case. Even the Andhra government will get some credit for eventually correcting which is obviously a very problematic situation.
But that would be an overtly optimistic scenario. What’s the short-to-medium-term strategy in that case, to scale up the MFI business?
Basix MFI, which is Bhartiya Samruddhi Finance Ltd, will not grow in terms of outstanding for at least next year or a year and a half because we have to demonstrate to the banks that at this scale, we are not making losses. Right now, our mantra is to cut costs and increase fee-based income.
Give us a glimpse of the other business verticals of Basix?
Those are much smaller. Those organisations were started in 2009 and the last one was set up just one month before the Andhra crisis in September last year. So these are in their second or third year now. Although they are growing in terms of revenues and number of customers, we are still not talking in terms of millions anywhere. We are still talking about 1-2 lakh customers and not enough to break even to have a significant all-India presence. The plan now is to stabilise the revenue model and then grow all over India.
The way forward is to go in a much bigger way in insurance (distribution) and other services. In insurance, we have always been the champs. At our peak, we had 3.8 million policies. So it’s not new to us. But now we have to do it in spite of this crunch. It takes a while when you are accustomed to some crutch and when that crutch is suddenly taken away, you have to start afresh.
What about your presence in other states?
We work across 20 states and are present in every single north-eastern state, even in Arunachal Pradesh. The only states where we are not on the ground are Gujarat, Tamil Nadu, Kerala, Jammu & Kashmir and Himachal Pradesh.
The MFI sector in general has seen pain. How do you see the industry outlook?
The microfinance sector as a whole is much bigger than what has happened in Andhra Pradesh. Of course, the sector has suffered for a year or a year-and-a-half. But now, thanks to the steps taken by the RBI and the central government introducing a microfinance regulatory bill, confidence in the sector is coming back. Banks have started lending more money; equity investments have started coming back; plus, organisations like Bandhan, Ujjivan, Equitas and Dhanlakshmi, which had no Andhra exposure, are also doing very well. In fact, they have grown.
So the MFI sector as a whole will continue to do well. Earlier, there had been asymmetry in this space as 40 per cent of the business was in Andhra only. But that got taken care of. So I see a bright future for the MFI industry. Still, the growth rate will be highly constrained due to bank funding. These banks have suffered losses because of the Andhra crisis. So their internal protocols have changed and the boards are more careful now. I doubt if we can see a growth of more than 30 per cent. Even 30 per cent in this sector is quite good, but we were accustomed to 100 per cent growth earlier and that will not happen anymore.
From Basix perspective, how does life look beyond microfinance?
The microfinance entity was our flagship. It had faced certain problems but those are now behind us after the restructuring. The rest of the group entities are agriculture & livestock companies, vocational training company and a company for banking transactions. These are all doing well, and their revenues and their presence are growing. Plus, they have now learnt to grow without any help from the micro credit infrastructure.
In the meantime, our reputation has remained intact and we have been invited by the United Nations Capital Development Fund (UNCDF) and the IFC to work in several other developing countries. We are already present in Papua New Guinea, East Timor, Bhutan and Ethiopia. Moreover, we have been just asked to do similar work in three more countries – Mozambique, Cameron and Tanzania. And for those three, we will have more integrated offering – it won’t be just microfinance. There will be livelihood services including financial services, and also real-life services like agriculture, livestock development and vocational training for the youth and others.
But the African continent is as diverse as India and equally tricky from a regulation perspective. How are you navigating that huge market as also some of the other geographies?
First of all, the growth potential of the African countries is just astounding. For instance, in Tanzania, there are more than 100 million hectares of arable land, which is around two-third of what India has. But the population is only 40 million, which is 1/30th of ours. Of that entire cultivable land, only 30 per cent is cultivated and of that 30 per cent, only 1 per cent is irrigated. If you bring in irrigation and cultivate more of the arable land, we can feed the whole continent and generate employment. So Africa is definitely worth looking at.
As for Papua New Guinea, it has major reserves of petroleum and natural gas and its GDP is much larger than the GNP. So the problem is how to significantly distribute even a portion of what the nation is earning, which is lying in some oil fund, and so on.
East Timor has a population of only one million and it has $80 billion of cash reserve – it all came from oil. But how to convert that into services and enterprises is an issue because if you start giving it out as doll, it will turn people into lazy bums. On the other hand, if you don’t do anything, you can’t fight the actual poverty that is there in spite of very high per capita income. However, Bhutan is a special case and the country is significantly dependent on the exports from India.
Finally, what’s the structure of operations for Basix outside India?
Well, we are not directly lending in any of these countries. We are basically providing technical assistance and ensuring capacity building for local partner institutions. For example, in Bhutan, we work with the Bhutan Development Finance Company, which has now received a banking licence.
(Edited by Sanghamitra Mandal)