Dar Credit & Capital Limited, a growing NBFC, offers personal and small MSME loans tailored to underserved communities across multiple Indian states. In conversation with Small Cap Spotlight, Chairman Ramesh Kumar Vijay and Director Umesh Khemka share insights into the company’s niche approach, low NPA levels, digital-backed but relationship-driven lending model, and future growth plans – backed by a strong team and an upcoming IPO.
Mubina Kapasi: Hi everyone and welcome to SmallCap Spotlight. Today we’ll be talking to a company that provides credit and other financial services to customers belonging to the lower income groups. I have with me Ramesh Kumar Vijay, the promoter and chairman and Umesh Khemka, a director at Dar Credit Capital Limited.
Gentlemen, thank you so much for joining us today. Let’s start off first by understanding a bit more about your company. As an NBFC, what are the variety of services you provide, the products you provide and a little bit about your customer profile as well.
Ramesh Kumar Vijay: We are a loan banking finance company and at present we are dealing with three products, personal loan to the Safai Karamchari of various municipalities in the state of Rajasthan, Madhya Pradesh and partly in Gujarat. We also have unsecured small value MSME loan, which we are offering in the state of West Bengal, Jharkhand and Bihar. Then we have a secured MSME loan, which we are also offering in the state of West Bengal and recently ventured into Rajasthan.
Mubina Kapasi: Mr. Vijay, let’s understand your journey a little bit. It’s this is an industry that does require a lot of experience, perhaps because you are lending also to a particular cohort. You need to know about the profile of the customers that you are lending to.
You need to have some sort of experience because it’s a very different lender group. So tell us a bit about your own career path and your journey that led to the formation of Dark Credit.
Ramesh Kumar Vijay: I passed out in 1983 as a chartered accountant and got associated with a transport group.
I used to buy trucks in the Higher Purchase Finance Method. So I liked the concept of the Higher Purchase Finance Method and I started my business with Indian companies like LG, Samsung, Sony, etc. They all came in a big way and there was a TV, fridge, etc.
Electronics were imported from India and I set up a business with a consumable finance in my hometown. I used to live in Kolkata. Kolkata had such a large availability.
The remote towns were not available there. So I set up a business from my hometown and my in-laws were from Kota. I started a business of consumable durables with my relatives there.
While doing the consumable durables business, I came to know that the customers buy TV, fridge, etc. from the dealer in the Higher Purchase Finance Method. And they sell it to the dealer and get a personal loan.
So I realized that the personal loan requirement is more. And all my borrowers were clean employees of the Kota Municipal Corporation. So I met the relevant executives of the Kota Municipal Corporation and set up a product.
Your borrowers take a high rate loan from the market. If you give me an EMI by deducting their salary, then I can finance your employee. That is how we started our journey of personal loan product.
My first client was Kota Municipal Corporation, who agreed that if you finance them, we will deduct their salary and give you an EMI. And this is a niche product offering. It is like a social impact financing.
In general, this community does not get money from anywhere, so they go to the private lender. And they get money in the formal banking channel, but they have such a documentary requirement that they cannot fulfill it. Secondly, they have to go to the formal banking channel again and again.
They do not have that mindset. But my product has a duty on the door of the borrower. And I have a limited documentary requirement.
That is how I succeeded in this product of personal loan to the clean employee. And slowly, slowly, slowly, it was added to the nearby municipality. And in a period of five to seven years, I started financing the entire Rajasthan part of it.
And in 2015-16, I was doing this product. Then in 2017, I realized that the company should grow and there is an opportunity to diversify in a small MSME loan to that customer segment, which the microfinance company is not able to give. And that customer segment, which is the matured borrower of the microfinance company, who has been in the credit bureau for a long time, we started a small MSME loan in the state of West Bengal.
A small value business loan to the customer against their security of land, building, house, shop, etc. That is how we are dealing in this product. And all the products are niche products.
Personal loan to the clean employee is a product where perhaps I am the only company of its type in the whole country. And there is no parallel, there is no competitor, there is no peer. That’s very interesting indeed.
Mubina Kapasi: Mr. Khemka, we’d love to hear from you as well on this.
Umesh Khemka: So, I was a practicing chartered accountant. I qualified in 1986 and started my own practice.
And I was mainly an advisor to the transport companies and basically doing audit work only. After 30 years or so, I retired as a CA and as a professional. And I came across Mr. Vijay.
Mr. Vijay was known to me since a long time. But we thought of expanding. He was already into this business.
And he was thinking of expanding to Kolkata, West Bengal and other states. Earlier, he was present only in Rajasthan. We joined hands.
And in 2016, late or 2017, early. And since then, we have been doing this MSME loan business to who are above MFI and whom best. So, in the range of say, ticket size 50 lakhs to 50,000 to 2 lakhs.
And this is how we are going in West Bengal and Jharkhand and other areas.
Mubina Kapasi: You know, that’s a great point you mentioned that by catering to lower income individuals and households, you’re also serving a greater socio-economic good as well. But tell me, do you see any challenges in this unique kind of business model?
Ramesh Kumar Vijay: High ticket size loans are needed.
For example, 5 lakhs, 6 lakhs, 7 lakhs loans are needed. Long duration loans are needed so that the EMI burden is more and the burden is less. This is a challenge because our asset liability gets mismatched.
All the money that we refinance or take from the banks, no one wants to give us more than 3 years. So, this is a big challenge. In this, the ticket size has to be increased and the duration of EMI repayment has to be increased.
So, we are not able to grow because we have a resource limitation.
Mubina Kapasi: You know, when you lend to lower income groups, there’s obviously a bit of a more heightened credit risk that comes along with it or a general risk. How do you deal with that? You’re talking about the risk of this product, right?
Umesh Khemka: Look, first of all, we have this whole digitization method, our credit policy.
We give the loan to the entire customer, our staff, who goes and meets the customer one-to-one. We give the loan to him only if he has a good business. And when we look at his business properly, we get an assessment that his income is okay, matching with his requirement also.
Then we give the loan. And after giving the loan, we always see that the money which has been given to him is properly utilized and his business is growing well. We go to him from time to time.
Because when we give a loan at a place, we have a range of 20-25 kilometers from our home. Our staff regularly visits them. And our collection process is personal.
We go and collect the money ourselves. When we collect the money, the customers feel comfortable with us. We are like more friends to them.
And if we have to give money to anyone, we give it to them first. Because we are personally with them, we go to them personally. And we are not friends that they just send money online.
In that case, whenever they want, they will give money. Once there is a personal approach, they give us the money immediately. The returns are a little better in this.
That’s why the risks are always there. The risks are not there. Risks are always there.
But when we personally touch them and take care of them, we get good returns. And our NPA is also very low. As of now, our NPA is less than 1%, which is very good compared to the industry.
Mubina Kapasi: So the fact that you are providing flexible repayment options to your customers means that your cash flows are a bit unpredictable. So how do you manage capital when you may not necessarily have visibility on your cash flows?
Ramesh Kumar Vijay: Look, our product-wise tenure is generally fixed. For example, if there is an unsecured loan, it is a maximum of 2 years.
If there is a personal loan, it is a maximum of 4 years. And if there is a secured loan, it is 3 years. So my product’s EMI cycle is generally fixed.
So our cash inflow is also predefined. What EMI will come in this month and what are my repayments. So this flexible payment method is not for the same customer.
Product-to-product is my flexibility. If I can repeat, there is a different EMI based in personal loan, different in unsecured and different in secured. So my cash flow is fully predictable.
And that is how we are managing our business for more than almost 30 years.
Umesh Khemka: And we maintain some cash reserves also. We maintain some cash reserves also.
So in case of emergency, that one can be reduced.
Mubina Kapasi: How do you reach a prospective customer or a borrower? What’s your distribution method?
Umesh Khemka: We call it branches. In every area, we do a market survey first.
In that area, how many customers can we get in the product we are dealing with. We also buy some data there. What are the LPA ratios there? What are the connections there? What is the political stability there? We study all these things.
Our staff goes to our business site and stays there for 2-4 days. And we talk to other MFIs or other players, lenders. After that, we come to a conclusion that we can set up a branch there.
After setting up our branches, our loan officers go around the whole area. They go around the market and talk to the shops, establishments, and businesses. They talk to them if they have any loan requirements.
Our credit policies are made. They give loans within the credit policy. And we usually fund for 1-2 years.
And in that, we look for our repayment cycle is mainly fortnightly. If the business is there, then monthly. And we look for the potential of the business.
Whether he will be able to pay EMIs or not. Who is in his family? How much financial dependence is there on him? These are all mentioned in our credit policies. It is given after that.
And according to that, we sanction the loan. Our documentation is very simple. And we go to the employees for documentation.
Our loan officers go and see his house and his business. After that, the branch manager also goes and checks. So that there is a double check.
Then we have a great team here in our HOs. In the HO, they also verify on the phone call. Once everything is verified, then the loan is processed and the loan is given to us.
Usually, the collection period is after fortnightly. But again, I repeat, if it is a good business, then we give 1 month. And if it is 1 month, we go for ECSA collection.
If it is fortnightly, then we go for cash collections also. Because 4-5 people are there. And there is a range of 20-25 km.
So we keep covering everyone. Usually, there are around 2000 customers in each branch. That is the maximum customer size.
And this is how we grow. Next branch, next branch. This is how we keep studying the area and open branches.
Mubina Kapasi: So right now, while you are catering to the lower income group, are there any plans to perhaps diversify your offerings to other customer groups? You know, beyond maybe personal and MSME loans to a broader customer base?
Ramesh Kumar Vijay: Personal loan or small value MSME loan. There is a tremendous growth potentiality in both these products. This is our niche product offering.
Like personal loans, perhaps I am the only company of its type in the whole country. And the small value MSME loan. See, there are a lot of microfinance companies in the country
But microfinance companies have restrictions, rules and regulations. And we have to work within those. So I would like to penetrate both these existing products and grow.
And right now, our existing states, like our personal loans, are only in Rajasthan and Madhya Pradesh. We would like to expand this loan geographically. And the MSME business loans are already penetrated in Bihar.
And we wish to focus on these products in the state of Bihar and Jharkhand. So we have not yet fully catered to our existing product line. So we will continue to look for growth in this existing product line by penetrating more in the existing states and diversifying in the nearby states.
Mubina Kapasi: What sort of asset quality trends do you usually see? If you could shed some light on that.
Ramesh Kumar Vijay As far as asset quality is concerned, my product line is a niche product offering. Like my personal loan, the quality of the asset is not an issue at all.
Because my EMI is linked with the salary. And as far as salary is concerned, they get their salary on time. And the employers, they can also never go bankrupt.
So they get their salary on time. So in that product, and my 30-year business experience of working with this community, with this borrower segment, I have never faced any challenges as far as asset quality is concerned. However, the other loans, the MSME loans that I do, there are some challenges.
But the margins are better. They compensate me for a little amount of delinquency. And secondly, my first product is a niche product.
The second product is also niche in the sense that my product offering is with the customer proximity. We call it touch banking. We give direct personal currency to the customer
My entire process is secondary driven. But when I do sourcing, there is a true physical touch with the customer. And my customers, my borrowers, and my loan officers, they live in the same proximity and with the continuous touch.
And they repay for fortnightly monthly. So I have never felt any challenge in asset quality. Even in the COVID period, there was no problem with the personal loan.
The MSME loan, at that time, my volume was very low. So because my personal was connected with the borrower, we did not face any challenges. So actually, my product segment and my borrower segment, I don’t see any challenges in asset quality.
I think a normal challenge or normal quality challenge in the asset will be there. But nothing to worry about.
Mubina Kapasi: FinTech is playing a very big role when it comes to co-lending, partnership, so on and so forth.
And that, in turn, is leading to increased disbursements. That means more business for you. So how are you looking at, if you’re looking at enhancing your own digital capabilities and digital infrastructure?
As far as FinTech or digitization is concerned, our existing loan process, loan processing process, customer onboarding process, is fully digitized.
Our main concern is our physical touch banking. Our personal loan customers, they have no interest in FinTech. They have no interest in FinTech because FinTech does not have an approach on any platform.
And my USP in that product is that I have to take an undertaking from their employer or the municipality that you will deduct my salary and give me EMI. So in that segment, in the personal loan segment, FinTech has no such role. And as far as my process is concerned, the customer onboarding is fully digitized.
Second, the process of MSME loan is through branch banking. And in branch banking, my physical touch and connection with the customer is there. Today, all the FinTech and AI and digitizing models that we discuss in our industry, they can help in business sourcing or loan disbursement.
But if a person does not give EMI, does not do loan repayment, then physical connect is the only solution where we are one up in the industry. So the whole process is technology driven, system driven, but my customer connect is direct. That is why we are taking advantage of both.
And my segment does not have an online onboarding mindset because I work in 3, 4, 5 cities. So as of now, we are happy and we don’t see any challenge with the FinTech companies. Our current collections are physical and directly connected to the customer, so we are happy.
Umesh Khemka: Yeah, and that is why we are of the view that our NP is so low because our physical connect with the customer is there, so the customer feels more comfortable in dealing with us. And we are, since we reach out to him first, he pays us first, then the FinTech companies who have to do online payments.
Mubina Kapasi: Do you have any plans to expand your footprint, reach newer markets?
Ramesh Kumar Vijay: See, as explained before, our personal loan is in Rajasthan, Madhya Pradesh and Gujarat.
We work in all three states where we feel comfortable. So for business expansion and for more footprints, we can further penetrate in the existing locations. Now we are doing it partly in Gujarat, we can fully concentrate in Gujarat.
And for further expansion, we can go to the bordering states.
Mubina Kapasi: You know, we were just looking at some of your numbers in these last couple of years and there’s been a great surge in your net profit. Could you tell us a bit about the drivers behind this growth and the sustainability as well of this growth?
Ramesh Kumar Vijay: Volume growth, see, March 24 was a normal financial year post-COVID.
And after that, in this year, we joined with 10-12 new brands. So the growth potential is very good in this product. So our growth has increased by 20-25%, so proportionately our profit has also increased.
And year-on-year, we can go with 20-30% CAGR and there are no challenges either in terms of sourcing or in terms of diversifying. So the growth potentiality, the financial numbers, they are going to be better up and there’s a lot of possibility that sales will be growing.
Umesh Khamke: Our margins with our business correspondence is also the same.
The margins we borrow and lend ourselves and the business correspondence that we are doing, we get similar margins and we don’t have any limitations in terms of resources. That’s why we are focusing more on the BC model and we expect to enter into more partnerships with other BC people also and we are going to grow this as well, with Sydney and DeSantis.
Mubina Kapasi: Now you have an IPO coming up, so could you tell us a bit about the preparations behind the IPO and the key milestones as well in anticipation of this IPO that you all have tried to achieve?
Ramesh Kumar Vijay: Historically, our NPAs are very low, always within 1%. The company has a dividend paying track record. For the last 5 years, we are continuously paying loan to them.
My capital integration ratio is very strong, more than 35% plus. We have an existing borrower base of more than 25,000. We are already operating in 6 states.
So we see that these are the key factors which will help us in driving growth and good value for our shareholders.
Mubina Kapasi: If I have to, let’s say, talk to you all maybe 5 or 7 years down the line, how different do you think our credit will be? In a sense, I would like to understand your vision for the company in the next 5 to 10 years and how do you see it grow from here?
Ramesh Kumar Vijay: With this IPO, our network will be very strong and I can see in the next 5 years, the company may go to a portfolio of 1,000 crore companies and we are well set on the same pedestal. Our branches, business networks, business models and penetration, which we are continuously achieving 20% to 30% CAGR, I can see our company going to a level of 1,000 crore companies.
So we are looking at organic growth.
Mubina Kapasi: Now, of course, every company is incomplete without a great team in place. Tell us a bit about who is the team that’s working with you all to help you achieve that vision and goal for Dar Credit?
Umesh Khemka: See, our chairman himself is a qualified man.
He is more than 40 years qualified Chartered Accountant and a Company Secretary. Myself also, more than 40 years, I am a Chartered Accountant and a Company Secretary. Then we have CFO.
He is also a qualified Professor. CEO is also a qualified CA. We have a Company Secretary.
She is also qualified. We have a Business Head. The Business Heads are veterans in the industries and they have been doing this kind of business since more than two decades or three decades.
This is a very strong team. We have more than 10 professionals and we have a team of more than 15 top KMP persons, and then other people of the industry. We have a very good, very, very vibrant and very good team.
That is our biggest asset, I would say.
Mubina Kapasi: All right. We wish you all the very best for that.
And Mr. Vijay and Mr. Khemka, we leave it at that. Thank you so much for joining us today on SmallCap Spotlight. And thank you viewers for tuning in.
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