Financing the Bottom of the Pyramid

Thomas Muthoot was born into a family business with retail lending at its core. With the motto 'Empowerment through affordability and convenience,' he has pioneered the art of lending beyond financial considerations and is now the executive director of Muthoot Fincorp, a division of the Muthoot Pappachan Group, which boasts a variety of unique financial solutions with sustainability at its core. Together, the companies cater to the financial needs of a massive market of underserved people in the world's most populous country — India.

Muthoot drew inspiration from C.K. Prahlad's book, “The Fortune at the Bottom of the Pyramid,” which sought to demonstrate how companies worldwide could identify, build and profit from new markets among the word's several billion poorest people, while at the same time help alleviate poverty. Five years after Muthoot first read the book, the ideas are no longer theory to him. He has proven that they work.

Muthoot Fincorp now has a network of more than 3,800 branches across his country. "Our aim is to empower women and alleviate poverty in India," says Muthoot, a member of Young Presidents’ Organization since 2011. “We also started this business inspired by the impact and success of the Grameen Bank, the micro-finance organization in Bangladesh, founded by Nobel Laureate Muhammad Yunus.”

"Within four years we have served more than 1.3 million women by providing them finance, training and welfare," he says. "All of them come from remote, rural villages, and we have tried to make them self-dependent entrepreneurs of their own micro-businesses. Most importantly, we go to these remote places and serve them on their doorstep."

The group's organization, Muthoot Mahila Mitra, follows the Joint Liability Group (JLG) model of micro-finance. Customers are organized into lending groups of five to 10 women, with each person offered a loan of between Rs10,000-15,000 (USD165-USD250) depending on her repayment capacity, for a tenure of 52 weeks. Within a few years the micro-finance business has attracted 800,000 customers and a loan portfolio of more than USD140 million.

The wellness of clients is equally important and the group conducts financial literacy classes, develops links to markets, runs medical wellness camps and provides water purifiers to those without safe drinking water.

Muthoot also spotted an early opportunity within the vast shortage of low-cost housing in India and was instrumental in setting up the Muthoot Housing Finance Company, of which he is managing director. The company typically offers home loans of up to USD25,000 for a period of 15 years, lending mainly to the low-income, informal sector who cannot secure funding from the formal banking.

Muthoot has instead built up a field-based assessment model that assesses income on the basis of cash flow, without any formal income documentation. Through this approach the company has been able to fulfill the dream of home ownership for more than 5,000 customers.

Power dynamics within these homes are changing too. A recent survey by independent finance agency IntellCash has shown that financial decision-making between husbands and wives has begun to equalize, a result of focusing on women's financial empowerment by Muthoot Fincorp.

"Many women in Indian households are not involved in any economic activities,” says Muthoot. "They haven't even realized their potential. We aim to uplift them to become part of mainstream economic society."

YPO (Young Presidents’ Organization) is a not-for-profit, global network of young chief executives connected through the shared mission of becoming Better Leaders Through Education and Idea Exchange™. For more information, visit www.ypo.org.

(The article is written by Grant Schreiber, Real Leaders)