The Asiamoney Award for Best Bank for Microfinance 2020 recognizes the 15 years of service Ujjivan (USFB) has delivered to the economically active poor across India.
From its branches across 24 states and union territories, USFB serves almost five million customers, with a strategy centred on growing alongside its customers.
The bank works closely with the local community and recruits from it to completely understand the nuanced requirements of India’s unbanked and underbanked.
Nitin Chugh, who joined the bank as managing director and CEO last December, explains that identifying communities in need of microfinance services demands large amounts of data-gathering on everything from “repayment behaviours and dispensations from local government, to local cultural norms”.
Starting by lending small amounts, over time UFSB has developed a detailed understanding of its customers’ income generation patterns and cashflow.
“We meet with these groups once a month and this helps us build an accurate picture of each community,” says Chugh. “This information enables us to deepen our relationships with these customers and offer larger ones on each previous paid-off loan.
“Many of our customers are onto their third or fourth loan cycle, which helps them build a credit profile.”
USFB may have started life as a microfinance company, but it is positioning itself for the growing numbers of unserved and underserved customers entering the middle-income bracket. Since it became a bank its focus has widened to micro-banking, helping customers open accounts and eventually purchase mass market banking products such as health insurance.
Bankable behaviours
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| Nitin Chugh, MD & CEO, UFSB |
Recruiting from the local community is a key strategy for USFB in building trust, even if many potential new customers are benchmarking the bank against unlicensed money lenders with punitive rates of interest.
USFB is selective about the markets it enters and tends to avoid those with a higher density of existing lenders, where increased competition may encourage some lenders to make irresponsible lending decisions.
Repeat borrowing is based on extensive data analysis, for similar reasons. “We are able to analyse borrowing by occupation and/or income at individual branch level, which allows us to fine-tune our credit policies and identify when customers may be ready to progress from group lending to individual lending,” says Chugh. “We can also recognize situations where borrowers may be struggling to repay their loans.”
In more mature markets customers may have relationships with more than one lender, so a code of responsible lending has been introduced in India. “There is also extensive information exchange between lenders,” explains Chugh.
“There are three main groups of lenders in this market – the large banks; non-banking financial companies that borrow from banks and lend to microfinance customers; and the small finance banks – and we are all required to share information,” he says.
More than money
USFB is aware that its responsibilities as a lender are in some ways broader than for those with more affluent customers. The bank operates financial literacy programmes that approximately one million customers have participated in, where they receive education on a range of topics from how to use an ATM to how to manage their finances. It also supports community projects, such as schools or healthcare facilities that require renovation.
Many of the areas covered by USFB are vulnerable to flooding and other natural disasters. To provide assistance in times of severe needs the bank created a disaster relief program, which allows it to give customers a moratorium on loan repayments, for example.
“We are not just a financial institution – we are one of the first organisations to respond when disaster strikes our customers,” says Chugh.
“When Cyclone Fani forced the evacuation of more than one million people from the state of Odrisha in May 2019, our people were on the ground distributing food packages, blankets and other relief materials. In addition, our ATMs were the first to be up and running when the cyclone cleared. This illustrates our holistic approach to customer service and it is why our customers view us differently to other banks.”