The reason for CA Grameen's market leadership lies in its business efficiency and financial construct, helping it grow its customer base from 3.2 lakh to 39.4 lakh as on date. "We are one of the lowest-priced lenders to our customers. Our average yield is about 21% compared with 23-28% for most banks and NBFC-MFIs," says Hebbar. The NBFC has been building a strong base within its core geographies. Of the 9.81 lakh customers acquired in the past 12 months, 53% came from its core markets of Karnataka, Maharashtra and Tamil Nadu. Of this, first-time customers accounted for 24-25% in Tamil Nadu, 32-34% in Karnataka and 40-42% in Maharashtra.

With over 1,727 branches, the company has a concentrated presence. The policy is to open a branch in one cluster only if there are 7,000-8,000 customers in a particular location, ensuring that one branch is suitably able to service their demands. "CA Grameen has adopted contiguous expansion rather than quickly building a pan-India network. Hence, its top three states' contribution remains higher," says Renish Bhuva, analyst at ICICI Securities.

Being an NBFC also gives it more operational flexibility to go deeper into the hinterland as penetration levels are still low — 10% of total credit outstanding in India is in rural areas. For instance, CA Grameen's rural-urban borrower mix has only kept increasing over the years, from 65%/35% in FY14 to 85%/15% even as it acquired another player, Madura Micro Finance, in 2019. In fact, CA Grameen is the only lender to 43% of its borrower base, and the only second lender to 39% of its customers. The overlap with rivals is minimal at 8% for Bharat Financial, 6% for Spandana, and 3% for the MFI-turned Bandhan Bank, according to analysts.

While foot soldiers are the backbone for MFIs, CA Grameen's HR framework also ensures a win-win for both the firm and its employees. For starters, the company only hires freshers from geographies it operates in, and in some cases, from the very family of its borrowers. Besides, a five-day week policy ensures employees coming from the interiors get a chance to go back home to visit their families. "For 97% of our loan officers we are the first employer, and almost 60% of our 11,000-plus loan officers come from our own customer base. External hires are only for specific areas such as finance or tech or risk," says Hebbar. The ingenious HR practice ensures that in the event of a default at the borrower's end, there is a better understanding of the reasons behind the crisis and acts a strong counter-risk mechanism. For instance, the best loan officer goes on to become the audit manager or the risk manager. "This creates a strong and resilient ecosystem within the organisation," says Hebbar.

A nuanced understanding of the risk framework has let the NBFC ditch the one-size-fits-all repayment approach as well. "Our research had shown that a borrower had multiple reasons for availing of a loan — education, house repairs, sanitation needs, medical emergencies, or for buying a bicycle. With such diverse needs, we created a credit line for borrowers rather than specific need-based loans," says Hebbar.

The flexibility was also extended to repayments. "Collections in the industry are either weekly, fortnightly or monthly, but we offered all of the three to borrowers as they are the best judge of their cash flows," says Hebbar. Today, 59% of its customers pay weekly, 37% pay fortnightly and the remaining repays monthly/four-weekly."

With a strong risk framework and a ceiling of ₹125,000 per borrowing family (though average borrowing is ₹47,000), CA Grameen has ensured that its credit costs have been manageable, even in the worst of cycles. Paolo Brichetti, vice-chairman and non-ED, who represents CreditAccess India B.V. on the board, says, "Microfinance is an unsecured business involving a certain degree of risk that can be effectively managed through robust internal controls. Our weekly engagement with borrowers combined with a limit-driven approach helps us navigate any crisis situation." While traditionally bad loan levels were not an issue, the pandemic upset the applecart as over the past two years, net borrower base declined to 3.8 million from 4.1 million pre-Covid, as the management went slow on onboarding new customers. Higher write-offs over the past six quarters also resulted in decline in the borrower base. But, of late, collection efficiency is back to near-normal levels at 98%. "We don't have recovery agents chasing borrowers, at best, we tend to recover 15% of the written-off amount over a three-year period, and that too if the borrower wants a fresh loan or manages to improve his cash flow," points out Hebbar. An outcome of that approach, according to Brichetti, has translated into higher loyalty. "Our customer retention rate has been over 84% for the past six years," says Brichetti.

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CA Grameen: A Resilient Ecosystem