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Friday, 25 October 2013 03:30 - - {{hitsCtrl.values.hits}}
He wished to obtain a loan to purchase a bus to fulfil his childhood dream of becoming a bus owner. However, the banks refused his application citing that he was too young to own a bus. He was also informed that the documents available were not sufficient to prove his credit worthiness.
I saw the unstoppable desire in him to own a bus and decided to take a chance on him. True, he did not have documents to prove his capacity to repay a loan but he, still in his early twenties had the passion of becoming a ‘bus mudalali’ one day.
Reliability and trust
We will call him Sarath. Sarath had only his savings passbook other than his ID card. The passbook was dirty as it has been used frequently and was always in Sarath’s pocket. Most officers would not have even opened it due the state of it.
The volumes of deposits in single entry in the book too were not impressive at all. Only small amounts of deposits could be seen. However, it was found that Sarath has deposited these small amounts regularly and consistently. Every Friday (the last working day of banks of the week then) he had deposited a small amount of money in the account over a period of one and half years and the balance has built up to Rs. 65,000, which was a very significant achievement for young Sarath.
Moreover, at the other end as a young Credit Officer, this finding delighted me, as I knew it was the key to enter into the transaction. Having uncovered the scope, I started digging into more details and Sarath came up with many stories as to how he has saved that amount of money. I was trained not to listen to stories but to see the reality. Therefore, I went with him to see the actual operation in the field in that evening.
Business acumen
I was with him for around two hours at the Pettah bus stand gathering on-site experience of his activities. I was so impressed with the way that he handled his livelihood. He knew most of the bus drivers, conductors, and runners.
He booked two long distance hires from which he got a commission for two schools for their annual trips. Two men came in search of him and wanted him to find a reliable bus for them to take a crowd of pilgrims on a trip to Kataragama in the following week.
During my stay with him at the Pettah bus stand that evening I noticed how he collected information on potential business prospects, happenings in outstation towns and routes, making new friends and DMU’s etc.
He had everything in the book, financial discipline, contacts, information, negotiating skills and so on. Sarath was earning his much-wanted capital without any financial investment but purely through his contacts and knowledge about the trade. I decided that I should not miss this power horse that was eager to become not only a bus owner but to become an owner of a fleet of buses.
Relationships and success
Today, after 27 years Sarath is the owner of a large business entity, which consists of group of companies including a bus company. Now he is one of the few customers who is privileged enough to be in elite band of many banks including state banks. They proudly say Sarath is one of their customers. Nevertheless, none of them know their own bank had rejected him a quarter of a century ago.
Credit Officers in the non-banking sector are quick decision makers when compared to their counterparts in the banking sector. They are trained to take quick decisions and that is where their survival too remains. Most decisions are taken out of the office, maybe on roads, at bus stands, factories, in markets and sometimes even paddy fields.
Even after disbursement of funds, they keep a close rapport with their clients right throughout the contractual period. It is always an eyes and hands on operation and not eyes on hands off. This relationship makes collection of repayments easy; having easy access to firsthand information of the area, repeat business options etc.
Strong foundations and risk-taking
Like any high-rise building, one needs a foundation to start with. That is where the non-banking sector comes in to play. Like in Sarath’s example, the non-banking sector takes the initial risk of making financial giants of the economy. They groom them but finally lose them to the banking sector.
The risk of grooming them is very high sometimes. Hence, the non-banking sector should know to strike a balance between profits and risk. We have seen some non-banking sector financial institutes collapse during the last two decades.
If a careful study is carried out on these failed institutes one could realise that the top management had failed to evaluate the risk element of their business at different levels and eras. However, this theory does not apply to institutions that have deliberately defaulted their shareholders and depositors.
As waterbeds in mountains are an essential factor to feed down streams, which connected, to large rivers, finance companies are needed to nourish the economy of the country at some point.
One cannot ignore the fact that despite all the setbacks in the non-banking financial sector it has contributed fundamentally to the economy of the country for the last couple of decades. Hence, the non-banking sector should be nurtured properly to upgrade preschool children of the business world like Sarath, in order to grow the economy.
(The writer, IMSL, is a General Manager of a non-bank financial institution and counts over 28 years of experience in the sector. He can be reached via [email protected])
