Loved reading the blog, I too have very small holding of Muthoot Micro finance. But let me mention here something I couldn't find in the blog which I believe is the biggest risk in investing in the stock- RBI.
Actually the company gives loans to those female groups mentioned above at interest rates as high as 22-25% because of which their NIMs are very high. Recently RBI has been giving soft commentary around the same, but on 9th Feb, 2024, RBI Deputy Governor came down heavily on MFIs warning that misuse of regulatory freedom would prompt regulatory action.
In such scenario, the day RBI comes up and take action controlling their lending rates, all profitability will be gone in air and stock can tank further. Anyhow, no one knows the future, the stock is cheap though, just wanted to bring this in notice of people reading the blog.
Great point - I drafted this end of January so was not aware of the specfic RBI warning to MFIs. I'll update my post to mention this. Thanks a ton for pointing out!
Amazingly written Mithun. I remember some months back I had a chat with someone from one of the leading wholesale lenders in India about what's happening in the MFI space and he said that all MFIs are being pushed to do digital collections but they are averse to it. The low NPAs exist due to 'offline' and 'group' behaviors which would go away in a digital landscape.
Going by this, there is lots of space for 'Fin' in the space but little space for tech. Only businesses willing to invest heavily in Ops would want to get into this business and most digital businesses would likely remain away.
2. start with an offline model -> add efficiencies with tech
I think the tech first fin people will start with digital collections and realise NPAs are going to be high as you grow into other customer segments and eventually will need some offline collection. My thesis is its easier for the offline players to find efficiencies with tech. There are a few pages in the DHRP which talk about Muthoots efforts to integrate tech and find efficiencies. most notably their super app which i referenced above.
Great post! I like the part that it stayed focused on the consumer side (and not the business model as you mentioned in the notes).
The mechanisms of those JLG and what kind of employees are enabling this is an area is worthy of another post, what do you say?
Also, "multiplayer social mode" this is very interesting. I checked the LinkedIn post, anything more on that topic? if not, that is a topic worth expanding as well. Could be a big help in structuring thoughts around Bharat audience better.
Mechanisms around the JLG are fairly well detailed in the DRHP. They talk about their entire org structure bottom up from the retail sales people to their credit branch managers. I think that's the best place to get this info, so I purposely left it out for brevity.
Multiplayer mode - yes, I have some thoughts in a draft. Will be posting soon!
Loved reading the blog, I too have very small holding of Muthoot Micro finance. But let me mention here something I couldn't find in the blog which I believe is the biggest risk in investing in the stock- RBI.
Actually the company gives loans to those female groups mentioned above at interest rates as high as 22-25% because of which their NIMs are very high. Recently RBI has been giving soft commentary around the same, but on 9th Feb, 2024, RBI Deputy Governor came down heavily on MFIs warning that misuse of regulatory freedom would prompt regulatory action.
In such scenario, the day RBI comes up and take action controlling their lending rates, all profitability will be gone in air and stock can tank further. Anyhow, no one knows the future, the stock is cheap though, just wanted to bring this in notice of people reading the blog.
Great point - I drafted this end of January so was not aware of the specfic RBI warning to MFIs. I'll update my post to mention this. Thanks a ton for pointing out!
There you go, RBI's soft calls now forcing Muthoot Microfin to cut its rates, happening for 2nd time now - https://www.cnbctv18.com/business/finance/muthoot-microfin-new-lending-interest-rates-loan-revised-reduced-lower-emi-19445913.htm/amp
Amazingly written Mithun. I remember some months back I had a chat with someone from one of the leading wholesale lenders in India about what's happening in the MFI space and he said that all MFIs are being pushed to do digital collections but they are averse to it. The low NPAs exist due to 'offline' and 'group' behaviors which would go away in a digital landscape.
Going by this, there is lots of space for 'Fin' in the space but little space for tech. Only businesses willing to invest heavily in Ops would want to get into this business and most digital businesses would likely remain away.
There are two paths
1. start with digital collections -> go offline
2. start with an offline model -> add efficiencies with tech
I think the tech first fin people will start with digital collections and realise NPAs are going to be high as you grow into other customer segments and eventually will need some offline collection. My thesis is its easier for the offline players to find efficiencies with tech. There are a few pages in the DHRP which talk about Muthoots efforts to integrate tech and find efficiencies. most notably their super app which i referenced above.
Great post! I like the part that it stayed focused on the consumer side (and not the business model as you mentioned in the notes).
The mechanisms of those JLG and what kind of employees are enabling this is an area is worthy of another post, what do you say?
Also, "multiplayer social mode" this is very interesting. I checked the LinkedIn post, anything more on that topic? if not, that is a topic worth expanding as well. Could be a big help in structuring thoughts around Bharat audience better.
Hey Pritesh - thanks for reading!
Mechanisms around the JLG are fairly well detailed in the DRHP. They talk about their entire org structure bottom up from the retail sales people to their credit branch managers. I think that's the best place to get this info, so I purposely left it out for brevity.
Multiplayer mode - yes, I have some thoughts in a draft. Will be posting soon!
Fair. I will check out the DRHP as you suggest.
And looking forward to the note on "multiplayer mode". :)
Great read