Mumbai-based Home First Finance Company (HFFC) is planning to increase not just its customer base but also expand into addition 15 cities. This ambition is driven by the existing schemes of things in the housing space. In a conversation with Pankaj Joshi, the CEO of the company, Manoj Viswanathan talks about his 2020-21 plan.
How has your mission statement translated into strategic focus?
Home First Finance Company was set up in 2010, with the clear mandate to focus on affordable housing finance. Customers were low or middle income individuals who are prospective home buyers but who would otherwise find it difficult to raise finance from the formal financial system.
Our strategy was built around addressing some of the basic issues which our target segment would face. First challenge was access to housing loans. About 8-10 years ago, affordable housing was not the buzzword as it is today, and there were few loan providers to this segment. We tied up with affordable housing projects, which would facilitate project level pre-approval. Today this is prevalent even in affordable segment, but then it was not so common.
Next challenge was that this segment lacked procedural awareness, on putting together documents for the proposal. We designed a process where our representative would go to the applicant’s place, meet them, figure out the needed documents, take a scan (via hand-held scanners) and load it on a cloud based loan processing system. The background checks done by our representative —check with neighbours, work colleagues and so on— was used to make up for any shortfall in documents.
The third challenge that we addressed was the 10 percent down payment requirement. Even if the applicant met the EMI criteria, very often the upfront payment (after which loan will be disbursed) was out of bounds. We created a product, ‘build up down payment’, which would enable the applicant to commence disbursals and contribute to down payment while construction was in progress. We were among the earliest to promote such a product.
On the builders’ side, we saw that often builders were not aware that such a financing option existed. Hence, they tended to filter out many clients. For around two years we had to interact and educate the builders that they need not turn away such customers.
Another crucial aspect was the turnaround time. We aimed to be the fastest in approval turnaround times for our client segment. Today with lots of options available to a home buyer, it may seem ridiculous but there was a time when delayed processing would mean a rise in the booking price and affordability recalculations for the applicant. This delay could cost in two ways— higher cost and non-availability of desired residential unit. Today, the trend among the builders is that small projects (100-200 units) have a quick turnaround and they also appreciate our quick turnaround timing as well.
The last challenge we tackled was transparency, which is vital. This is because we understand that the financial literacy standards of our target segment is low. In our dealings with the customer, we give extensive education of the pre-EMI interest, all charges explained upfront, involvement of the entire family and so on. The loan applicant does not have to visit the branch multiple times. In fact his or her first visit is once the loan is approved to complete the process.
We were also clear from day one that there would be zero charges on prepayment or loan transfer. We also introduced an auto-prepay product, which would enable the customer to pay Rs 500 or Rs 1,000 extra a month and that would make a substantial difference in the number of EMIs he could save.
How has the approach to borrowers been?
A normal approach towards borrowers who have been traditionally excluded from the formal system for being too risky and so on, would not work. So, we decided that when most parameters of documents and personal scrutiny are done, it would not make sense to be hung up on documents like a salary slip which people could or could not produce. Our loan range starts at Rs 1 lakh and 90 percent of loans are up to Rs 20 lakh.
We have 15,000 live loans with a loan book of Rs 1,300 crore. We have a gross NPA of less than 0.7 per cent and in numbers perhaps it would be less than 100 loans. This is in spite of the impact of events like demonetisation.
How is your balance sheet primed for your growth plans?
Regarding our financial position, today our debt-equity ratio for the Rs 1,300 crore book stands at 3:1 and we can go up to 6-8 in the current framework. Last year we had raised around Rs 150 crore and there is an on tap commitment of Rs 150 crore.
We have a plan for a book of Rs 6,000 crore by 2020-21. That represents a 60-70 percent year-on-year growth from here on. That would mean around 60,000 customers. In terms of cities, today we have clients in 25 cities and we see that going to 40 cities.
Our net interest margin is in the 300-350 bps range, which is par for our type of business. In cost area, we have used technology for optimisation. The application process is lean and quick and that improves the field force productivity. We have 50 people in the head office and 350 people in the field across 45 branches in 25 cities.