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Janalakshmi Financial Services, set up in Bengaluru in 2008 by former Citibank senior executive Ramesh Ramanathan and his wife Swati, was started with a simple mandate: To run a scalable business that provides small loans to low-income borrowers in urban India. With over 5 million customers currently, borrowing on average between Rs 15,000 and Rs 50,000, it has stayed the course.
What has helped is Janalakshmi’s awareness that technology would play a vital role. To that end, the non-banking financial company (NBFC) embraced technology early in its life, deploying, among other things, a core banking software in its commencing year. This provides software modules to run most parts of a bank’s operations.
For the year ended March 31, 2016, Janalakshmi clocked revenues of Rs 1,784.5 crore; profit after tax was Rs 160 crore. It has over 12,000 employees, working mostly out of its branches, which it calls Jana Centers.
Things, though, are about to get more intense for Janalakshmi. “We have an in-principle banking licence,” CEO VS Radhakrishnan tells Forbes India. This licence, granted in September 2015, was specifically for a small finance bank; the Reserve Bank of India (RBI) is encouraging the setting up of such banks to bring financial services to the poor and underserved majority of Indians.
Radhakrishnan, 48, who joined Janalakshmi in 2007, expects the company to make the transition well ahead of the March 2017 deadline by when various regulatory requirements have to be in place.
The people behind it
Janalakshmi started life in 2000 as a division of Sanghamithra Rural Financial Services (SRFS), a part of Myrada (Mysore Resettlement and Development Agency), an NGO that worked to resettle Tibetans in India. In July 2006, it was incorporated as an independent company and in March 2008, it was registered with the RBI as an NBFC. It was formally classified as an NBFC-microfinance institution (MFI) in September 2013.
Using the nuts-and-bolts philosophy on which they built their policy advocacy organisation Janaagraha, the founders, now both 53, set up a two-tier structure with the non-profit Jana Urban Foundation, a Section 8 company, functioning as the parent company of the profit-seeking Janalakshmi Financial Services.
“I was acutely aware of the need to raise capital to fuel growth,” Ramesh Ramanathan explains on the company’s website. “I knew such capital would only come if investors were confident of the company’s profitability and continuing growth prospects, along with well-established controls and the highest standards of ethics and corporate governance.” A market-oriented company would also find it easier to attract and retain the best talent as well as move quickly to invest in strategic areas, including technology and new promising business avenues.
Also, with cities and towns projected to account for every other Indian over the next three decades, from the current one in four, the Ramanathans wanted to tap the urban play, Radhakrishnan says. The other intent was to ensure scale, again something which urban India lent itself more easily to. And also, “they wanted to do this pro bono,” he adds.
Janalakshmi can be seen as the flagship of the Jana Group, which includes Janaadhar, a low-cost housing business, and Jana Capital, which now holds the promoters’ shares, previously held by the Jana Urban Foundation. The Foundation now works on educating poor people on financial planning, and handles financial advisory for Janalakshmi free of charge. “In that sense, they have separated the heart of the intent —to help poor people—from the mind,” points out Radhakrishnan.
Puneet Bhatia, an MD and country head for India at TPG Capital, emphasises the relevance of Janalakshmi. “In India, there is a tremendous opportunity to fill the gap between what is being offered by traditional banks and what the nation’s growing population needs,” Bhatia had said in April, after the private equity firm led a $210 million (around Rs 1,400 crore) investment in Janalakshmi. That comprised $150 million in directly buying an undisclosed stake and another $60 million in buying the stake of some investors who were seeking an exit. “Janalakshmi is a pioneer of microfinance and is at the forefront of addressing this opportunity in a meaningful way. We look forward to our continued partnership with the company and helping more Indians access financial services,” Bhatia had said at the time. TPG had also invested in Janalakshmi in 2014.
Among Janalakshmi’s early investors were Lok Capital and Michael & Susan Dell Foundation, which exited in 2013 in a transaction worth Rs 250 crore, according to a press release by Unitus Capital, a reputed impact-investment bank, which has helped Janalakshmi raise funds from 2009.
“Janalakshmi has succeeded due to multiple reasons,” Eric Savage, co-founder and CEO of Unitus Capital tells Forbes India. “Ramesh [Ramanathan] is an incredible visionary, laser-focussed and relentless; embracing technology is a core part of their DNA and has allowed them to scale fast,” says Savage, adding, “[With the transformation into a small finance bank], Janalakshmi will have the ability to bring best-in-class services to the SME sector as they have already done in microfinance. This is one of the biggest market opportunities in the world.”