Streaking up the industrial ladder at the accelerating speed of a rocket taking off, Mr. Rizwan D Shams is one of the steering wheels behind the unbound rise of IPDC Finance. Indeed, like a Phoenix rising from the ashes, IPDC Finance has emerged as one the strongest and fastest NBFI in the country with his restless spirit to meet the goal.
FINTECH: When IPDC was founded there was a need for private sector FI, as banks were nationalized and there was problem of bureaucracy. What is the situation now? Are NBFIs living up to their expectations?
R D Shams: As an industry we can do even better, because the scope has widened. Situation and the economy has evolved a lot and I believe that the financial market in Bangladesh has enormous potential to grow. There are numerous sectors which need financing but due to the lack of proper channel and knowledge, these are untouched by the Formal Financial solutions. Every financial entities are trying their best to do something significant for the market and there are no longer any barrier/constraints for NBFIs to grow their businesses in current economic situation. So, to me, the opportunity and arena for NBFIs are not limited. Our ambitions are high, we dream high, and we believe in ourselves to lead the financing businesses in different new verticals.
NBFIs focus very strongly on corporate business where all are targeting the same few number of corporate clients. But, as per my understanding, there are enormous opportunity remain in other business sectors.That is why, a couple of years back, since our rebranding, we thought of changing and redesigning our business orientations.
FINTECH: Please tell us a little more about the redesigning the business orientation.
R D Shams: We decided to redirect our business focus and widen the geographical reach. We are diversifying our business focusing on customer centricity. Simultaneously, expanding business from urban to rural is in process to reach more and more unserved people.
As a part of business diversification, we are to develop the retail business sector. Still we consider corporate business as one of our important business sectors, but retail is the new blood line. We knew that offering only the conventional retail products would not bring any significant change. So, we decided to take the challenge of offering innovative products to the customers along with the conventional ones.
Mostly financial organizations are Dhaka-Chittagong focused, even, we barely see any house building developers outside these two mega cities. We have been working in these mega cities, but we are giving equal importance to the rest of the areas. Recently, we have launched “Affordable Home Loan” for middle income people to make their aspiration become reality. Our target area is not Dhaka and Chittagong, rather we offer this product to semi-urban to rural areas. So, if I say more precisely, if companies only target a few Dhaka-based clients then, at one point,they will reach the point of diminishing return. To find a better way out, we need to search for other market opportunities with less competition and place our products innovatively. There are currently 57 banks and 33 NBFIs*. If all of them want to give loans to handful of clients in Dhaka, then no one can make profit, and situation will end up setting price hikes. In contrast, other untapped markets have a vacuum, where people are not getting loan due to not having proper eligibility to get conventional loans.Though it is true that recovery is difficult in these areas, compared to corporate, but the size of these sectors is huge.
Initially, we are going quite small-scale with affordable home loan. Besides, we are also thinking about ‘Consumer White Goods Financing’. Under this product people will get loan facilities for buying consumer durables like television, refrigerator, mobile, smart TV, furniture etc. and our focus will not be limited to just Dhaka and Chittagong, but beyond that. If you are a school teacher working in a village and you want to buy a smart TV, and you aren’t likely to have one and half lakh taka cash. We want to empower this sort of customers to make their aspiration become reality through financing.
In addition to that, we are planning to transform one of our existing products named “Supply Chain Finance”. Currently we are doing the entire processing of Factoring Financing through manual intervention which requires lots of time and lacks process efficiency. From verifying the documents to processing the disbursement, whole process in manual system takes 1-2 days to Due to these barriers, only four to five NBFIs are offering this product. We are working on developing a new system to overcoming these barriers.
FINTECH: How are you going to overcome these barriers?
R D Shams: To achieve the process efficiency, we have been working on developing a digital platform for the entire supply chain finance processing. This platform will create an eco-system of all the organizations, suppliers and Distributors of the industry. We can easily reach all the stakeholders from every layer of supply chain system. As our target is Small and Micro Enterprises, we are given a grant from DFID under their ‘Business Finance for Poor in Bangladesh’ fundfor this venture. This will definitely help us to offer supply chain finance products to the root level.
So, our platform will automate the process. It will be a transparent system where we can see the number of invoices, work orders and demand orders have been issued by our clients. We can also track the whole supply updates without physical inspection. We are discussing with a globally renowned technological experts. We are excited to use Block Chain technology as the platform for this system.
FINTECH: When do you plan to deploy this?
R D Shams: We have been discussing and assessing different proposals from couple of international technology companies. If everything works out as per the plan, we will be in the market within a year. Meanwhile, we will continue to facilitate our existing clients with current products in manual processing.
FINTECH: Talk about the Blockchain technology you mentioned. Why you chose Blockchain?
R D Shams: There are ample possibilities of fraud in the current manual system. Invoices can be duplicated, mismatches can be happened between work order and invoice figure, Product can be rejected later, many more situation can arise.Actually, we are operating in a foggy environment.
There are so many technologies available in today’s world, but we needed the most secured, sharable, timely and easy application. Blockchain technology is the one which satisfied our all the requirements.It’s a shared ledger, real time processing, most secured platform and capable to process complex transactions in simpler way. This technology will change the whole ecosystem. The main benefit of this platform will be the transaction cost minimization. Most importantly, due to process efficiency, will be able to give loans at a very minimal rates to all the clients.
FINTECH: Do you worry about convincing your clients about the technology, given that Blockchain is a relatively new phenomenon?
R D Shams: Initially it may take massive effort for us to persuade the corporate clients and educate the suppliers and distributors. But the proper knowledge sharing, and communication will play a pivotal role to make them understand the benefits of this technology. Corporates are smart, they will surely understand that if their suppliers and distributors are benefitted, eventually they will be benefitted. From this technology, suppliers and distributors will also be able to get the required fund instantly, and they don’t have to wait for 60-90 days.
FINTECH: There was a history of huge Non-Performing Loans when you joined IPDC. How is the condition now and how you are managing that?
R D Shams: We had our own experience with NPLs and at a point, it was nearly 43 percent. That has dropped to .62 percent now, which is less than one percent. We are aware of not giving loans to corporate clients that can potentially become defaulters. Because, if a company lends 50 crore to one corporate customer and it fails, then that’s a big shock. But if you give, say, 50 lakh taka to hundred borrowers, then there is less possibility of everyone becoming defaulters. May be five will fail and the rest 45 will perform. Overall the risk will be shared and minimum.
Additionally, risk of offering new products is always present in business. New products give the market some new dimensions, so as the competition and risk. As I mentioned earlier, these target segments are a bit risky to facilitate with loans and get the repayment in proper manner. That is why we are taking effective measures to minimize the possibility of loan default.
FINTECH: You have SME products. It’s normally considered risky for practical reasons. What has been the response to your products?
R D Shams: Our long-term experience in dealing with NPL has made us efficient in recovery system. As per my experience MME financing is a very risky venture if the monitoring is not good. In my view, MME loan performance depends fifty percent on credit assessment and the other fifty depends on post monitoring.
We know, high risk lies in SME business if the client shuts the business. That time it becomes nearly impossible to track and recover that fund. So, no matter how good the loan is, if the post monitoring is not good then there is a much higher risk of default. Our recovery monitoring is very vigorous. We intensively follow up the client about his/her business performance. Irrespective of the overdue status, we follow a mechanism where our recovery people visit clients every month. This provides us with a very clear understanding of the client’s situation. Loan without proper monitoring is extremely risky, that’s a simple fact.
We started our MME business in 2009. Figures were not very impressive at that time. In 2015 we closed 40 crore taka in MME. But business changed rapidly. Now our MME portfolio is 900 crore taka. As per our vision, in next five years, our balance sheet will be eleven thousand crores, of which our core focus is on small-medium enterprises, supply chain financing and affordable home loan. If you look at our portfolio pie, it’s fifty percent corporate. The corporate segment in about Tk1900 crore. We want our balance sheet to grow, and it will be done through the other parts of the pie.
Corporate business will not be smaller, but it will not dominate singly our balance sheet. We actually want to enlarge our pie, with developing new segments, as well as maintaining a steady position of Corporate Finance.
FINTECH: You are running a campaign for women entrepreneurs. Tell us about that.
R D Shams: Financing women entrepreneurs is one of the most important aspects of our strategic goals. From 2017, it has been determined to uphold the women entrepreneurs in a more effective manner. Products have been designed, payment term and interest rates are also decided in favor of women to give a boost in their working capital. Recently, we launched a product in the last Women’s Day called ‘Joyee’.
To encourage our target people, we have launched a very lucrative offerloan facilities for women in 8% interest rate. I must add that these loan facilities are not any different from the conventional loan facilities, but the difference lies in the interest rate. Currently we are offering this offer for only those women entrepreneurs who are engaged in production/ service-based businesses.
To prevent exploitation of this we have a dedicated desk. Because, sometimes people make their wives the owner on paper, but they don’t really have any role or control over the business. So, we really look into this matter whether the women are actually carrying out the operation or not. We carry out interviews and take other necessary steps to ensure that.
We also have an interesting deal in home loan for women. If the owner of the flat is a female, we give a discount. When a husband gets a trade license issued under the wife’s name for getting a lower rate there is no guarantee that it’s for the woman’s benefit necessarily. But it’s not the same with property purchase. If the property is under the woman’s name that really empowers her, because she owns it. IPDC’s discount really gives a tangible incentive to the husband or the father or the brother to register the property under the name ofthe female family member. We believe this will create positive impact on women empowerment.
FINTECH: What kind or amount of fund you allot for this?
R D Shams: Currently, 14 percent of our loan portfolio is women in Retail sector. Besides, 1.06 percent MME portfolio and 6.01 percent MME Clientare Women Entrepreneurs.We want to increase the number exponentially to meet our strategic priority for next five years. Our board and shareholders are also supporting us in this matter.
FINTECH: Do you feel any impact of the recent problems, even crisis one might say, in the banking sector?
R D Shams: We are not outside of the market. I can’t say that we are unaffected by it.But I feel that there is still a panic in the market and the panic becomes bigger than the actual problem. As a NBFI, obviously a portion of our balance sheet is from bank borrowing. It’s not just us, it’s true for all other NBFIs. When banks lose public deposit that does affect us, because there must be a crunch. It’s basically a cycle. Banks can operate because they don’t allow the massive deposit withdrawals. Because, no banks can survive a complete withdrawal. But again, we can proudly say that there hasn’t been a single instance where a depositor came to us and we said that we can’t en-cash you today, come later. Even, you may have heard that many NBFIs stopped disbursement. But we can proudly say that we did not stop disbursement for a single day.
We had to take a different route to mitigate the liquidity crisis and simultaneously, ensure the sustainable business development of IPDC.We emphasized on hunting down deposit in the market, rather than selling loans.We see that the government has taken some steps. Now the market isn’t quite as tight as it was.The market is quite stable right now. This wasn’t the case just a couple of months ago.
I think, there is still need for funding in the money market. Banking sector is such a place where our raw material is money. If the price of the money increases, then there will be an impact. If we took money at six percent, now we have to take it for a nine percent. At one point of time it had even reached 11 percent. So, repricing of my portfolio occurs naturally. But specifically, as an individual player we don’t really feel any massive threat of this situation.
FINTECH: What’s ahead for IPDC in 2018?
R D Shams: Our focus is on our customers from far flung areas. To reach the untouched, we are relentlessly working on network expanding, customer centric offerings, business transformation, product innovation, prompt and efficient service delivery, and so on. We believe in simple communication because our customers want simple solution. We love to share and spread unbound happiness to every life. We are evolving, we are growing to become the most customer friendly and perusable financial company.
Thank you very much for your time.
You are welcome.
