Satyen Suryavanshi, owner of consumer durables store Sri Swami Samarth Electronics in Ghoti village, near Nashik, is a happy man. Despite demonetisation and the roll-out of the goods and services tax (GST) which impacted consumption across the country, Suryavanshi claims a 20 per cent growth in sales over the past six-seven months. From refrigerators and flat screen televisions to air-conditioners, microwaves and fans, Suryavanshi sells all kinds of consumer durables. His store caters to 10-15 adjoining villages each with a population of 500-1000. While good monsoons have a role to play, the reason for Suryavanshis good sales this year is quite different. "Consumer finance companies such as Bajaj Finance have started offering no cost EMI finance in our village resulting in higher sales," he says.
Suryavanshis farmer friend, Haribhau Gaikwad, 30, had taken a loan last year from a money lender to buy a ceiling fan and an LED TV at 8 per cent interest. This time round, Gaikwad opted for a no cost EMI interest loan from Suryavanshis store through Bajaj Finance for a refrigerator. While the TV he bought was a local brand that he got 35 per cent cheaper than established brands, his new refrigerator is a Godrej and he is happy to pay a premium on it. In fact, till a year ago, Suryavanshi had few established brands since there were few takers. Things are changing now. "People are investing in brands because of no cost EMI, and finance companies don't support local brands," he explains.
Non-banking financial companies (NBFCs) see the next wave of growth from rural and semi-urban markets. Rural business accounts for 13 per cent of Bajaj Finance's total AUM (assets under management) of Rs 72,139 crore. "Rural AUM is growing at 137 per cent year-on-year on a lower base. It will be a Rs 1,000 crore profit pool business in the next five years," says Rajeev Jain, CEO, Bajaj Finance.
Kamal Nandi, Business Head & EVP, Godrej Appliances, attributes much of his companys rural growth to NBFCs. Godrej is in the final stages of tying up with an NBFC to push sales in semi-urban and rural markets. While consumer finance as an option to purchase a consumer durable is close to 60 per cent in metros, its hardly 10 per cent in rural markets. "But the highest growth is from rural areas and is a space to watch out," says Nandi. Consumer durable finance is a Rs 62,130 crore market.
Rural markets contributed to 30 per cent of the sales of HDB Financial Services (the NBFC arm of HDFC Bank) this Diwali. The biggest challenge in rural markets was assessing credit worthiness of consumers, but tools such as Aadhar will streamline the process, says an HDB official.
Ramesh Iyer, Managing Director, Mahindra Finance, says consumer durable financing is a high volume game. "It wont be cost efficient as EMIs are smaller compared to automobiles. Companies need a wider offering to be sustainable."
Sanjay Nandrajog, Group CEO, Sahaj e-Village (a SREI initiative which offers digital last mile services for banking, insurance and consumer durables), says while an opportunity exists, most consumer durable companies dont have last mile reach. "It will be a slow pick-up till companies invest on last mile reach." But NBFCs are leaving no stone unturned. From buying consumer durables and selling to rural consumers directly to tripartite profit sharing deals with the durable company and the local retailer, they are going all-out. "Our rural consumer loan segment witnessed an 86 per cent growth in Q2 FY18. Demand growth is likely to accelerate," observes Jain of Bajaj Finance. Rural is the new growth market for NBFCs.