• Young Turks

Padmaja Reddy’s Spandana Sphoorty Financial Limited helps the ‘poor to harness their naturally entrepreneurial spirit.’ The organization is today India’s largest microfinance institution that has support from most mainstream institutional lenders. Reddy aims to make it the number one microfinance organization in the world in the next few years.

Shereen Bhan (SB): You have been in the microfinance business in India for almost 12 years. What has this decade-long journey meant to you?
Padmaja Reddy (PR): Initially there was no support when I went to a few bankers and asked them to give me a loan. I would explain that the money would be given to poor households but I would recover the amount and pay them back. And they simply laughed at me. So I was not able to raise loan funds in the initial three years; instead I had to make do with local fund raising. I even collected and sold old newspapers to raise the initial funds.

SB:  Are more and more banks and financial institutions coming your way now?
PR: Oh, yes. Today we are flush with money. In fact, fund raising is the easiest part of my job now. My balance sheet speaks for itself, my borrowers speak for themselves and my track record shows that this is the best portfolio you can show to any bank. I have broken quite a few myths regarding microfinance during my career.

SB: What are some of these myths that you have broken?
PR: Initially there was a myth that it takes five years to break even. See, even if you are charging close to 40 percent effective rate of interest, since the loan size is very small, the operating cost is very high (that time it was 28 percent-29 percent). So people believed it takes five years to break even. But we broke even in six months’ time.

Then there was a myth on scalability which indicated that if you are dependent on grants, you cannot scale up because no investor will come forward. Since we started making profits after six months, we did not face any problems in scaling up.

However, we are an NGO and because there is no regulator, accountability or ownership for NGOs, we decided to get into the NBFC mode. It was not smooth sailing and at one time there were even all kinds of nasty rumors about me.

SB: You fled the country, even went to the extent of saying things like you are no more.
PR: Such rumors/statements about my husband and I did not matter because I still went to the borrowers. People needed to understand that no one borrows from me but from Spandana Sphoorty Financial Ltd.

SB: You have been talking to big players like Temasek. Are you looking at the IPO market and at bringing on other investors?
PR: I have to provide exit opportunities for my investors. I give them enough in terms of returns, they are so happy with me that they call me a rockstar. As far as an IPO is concerned, we’ll take one year to make an IPO and simultaneously I can see how the market really receives microfinance options.

SB: Agencies like CRISIL have rated you.
PR: Last year we were rated P1, which is a rank that no other microfinance organization in India has achieved till date. The ratings and rankings just prove that we are moving on the right path at the moment.

SB: From assets worth Rs.4,000 crore under management you are aiming at Rs.10,000 crore by 2012?
PR: We are aiming for more than Rs.10,000 crore though we are very conservative in terms of what we tell people. I am actually hopeful of achieving Rs.12,000 crore.

SB: What can we actually expect from you as far as microfinance is concerned over the next eight years?
PR: We will become the number one microfinance organization in the world, not only in terms of the number of members but by offering several services apart from just credit-related ones.

SB: You are diversifying and have already got into healthcare. You are also setting up rural hospitals primarily for maternity care?
PR: I got into maternity care especially after hearing the story of a woman who had borrowed Rs.10,000 for her caesarean operation. If you just take the interest she had to cough up while repaying that loan over the years, it amounted to almost Rs.1 lakh, which is ridiculous for a Rs.10,000 loan.

SB: Apart from healthcare, what else are you looking at now?
PR: Today we have a huge network and are looking at becoming a retail channel as well. So we are buying oil, rice and dal for the benefit of our borrowers. Of course, it is not that you can always reduce their expenditure; net impact may remain the same.

SB: On the regulatory front, given the fact that you are seeing such a rush of money in this space, do you think there are any loopholes that need to be plugged?
PR: Not really, like today the RBI is so conscious, they are directly going to our branches and meeting our borrowers. Two years ago they didn’t have any first-hand information about this field. Microfinance organizations are growing at a really fast pace. Every month we add 2 lakh clients.

SHEREEN BHAN is the Executive Editor, CNBC-TV18.

©Entrepreneur July 2010

Tags:
microfinance, Padmaja Reddy, Spandana Sphoorty Financial Limited