Ujjivan is a rare bright spot in Indian finance
February 6, 2020
Summary – The article talks about a growing start-up in India called Ujjivan whose main business model is to bring the group lending techniques being pioneered in rural microfinance to urban slums. The main idea is to provide financing to small rather than tiny business. Ujjivan, which as a condition of its banking license was forced to list its shares in December, was flooded with eager investors. Its share price is up 50% since then, the growth was spurred by its stunning client growth to 5 million clients and an $1.8bn in assets. They disburse an average loan of $500 which amounts to INR 35,000. The number of borrowers has been huge, return on assets are 2.5% while losses are at only 0.3% of assets per year and return on equity an astounding 20%.Such good numbers are explained by the lack of competition in the market as the spread for Ujjivan between its lending and funding costs is 11%, which for other large banks is 3% also the business is boosted by the support of government which undertook the responsibility of making a national identity card and new means to transfer money directly which has made the process even more easier. Ujjivan is in the midst of a serious effort to make that digitized network work for the illiterate—a large if unquantified proportion of its customers—in ways that both broaden the bank’s appeal and reduce its costs.
Opinion – Me being an of Indian nationality and background, can see the potential in the business. The Indian subcontinent is the second most populous country in the world and the difference inside the country between its rich and poor is stark. The ratios are very imbalanced with the rich being the very few and the poor being the many, in many rural areas development is still to reach and ventures like this that support and uplift the other side is a great venture not only in terms of good deed but also financially as that is the sector which has the most potential for growth within it. Perhaps the most important factor behind this success is the size of the potential market—300m people who are just above very poor this makes the range of the business very wide and without any current competitors they are gaining as much profit as they can. These small loans also don’t account for large losses and return hefty profit, support from the government has only boosted that growth further, with new payment systems and identification techniques the whole process has been made simpler. All this combined, it gives Ujjivan an competitive edge over its rival and a chance to grow in a time when others are still.