Arman Financial Management Discussions


An Economic Review

Global Economy: While the growth outlook has picked up across all regions, Asia is in the spotlight as it is poised to be the key growth driver expected to account for 70% of the global demand. Regardless of the sluggish demand from the rest of the world, there has been an increase in consumption across Asia, supporting economic growth.

With rapid interest rate hikes to curb inflation which was registered at 8.7% in 2022 (expected to decline to 7% in 2023) and the banking disruptions which surfaced in March 2023, recessionary anxieties are induced, which exacerbated economic slowdown and decline in growth from 3.4% in 2022 to 2.8% in 2023. Further, the risk of the US not being able to comply with the debt ceiling might intensify the prevailing financial instabilities.


Indian Economy: As the world dwelled on uncertainties, the Indian economy stood strong showcasing broad-based recovery across various sectorbiV; eventually recording a GDP of approximately 7.2% for FY23. Growth in this fiscal was primarily driven by private consumption and capital formation, resulting in employment generation.

Indias agriculture sector was projected to grow by 3.5% in FY2022-23, buoyed by domestic demand and exports. The Government launched PM Kisan Samman Sammelan in 2022 and released PM-KISAN funds worth Rs.16,000 crore to farmers, motivating them to meet their agricultural needs and aspirations. Overall, this sector is likely to be steadfast, backed by healthy progress in Rabi sowing, with the area under cultivation being higher than the previous year. This has led to a recovery in the rural economy.

RBIs monetary tightening cycle reduced the retail inflation rate from 7.8% in April 2022 to 5.7% by December, thus bringing it within the desirable range.

Resurging from the prevalent global volatilities, Indias growth is forecast to remain robust in FY24 with vigorous credit disbursal and investment cycle, attaining an estimated GDP growth in the range of 6-6.5%.


Agriculture - GDP - mint

Rural India. A solid growth engine

The rural economy contributes 25-30% to the GDP. Traditionally, agriculture was the primary source of income and employment in rural areas, but the non-farm sector has gradually replaced it.

A good harvest season is anticipated as the Indian Meteorological Department (IMD) forecasts that monsoon seasonal rainfall will likely be 96% of the LPA. High rabi food grain production was recorded in 2023, making this the fourth consecutive year of increased rabi food grain production. Rabi food grain output is estimated at 170.1 million tonnes, which is 6.2% higher than the previous year. A key factor determining Indias growth prospects in the current fiscal year is the southwest monsoon. IMD predicts a normal monsoon in 2023, instilling optimism among farmers.

The Gross Value Added (GVA) of agriculture and allied sectors in the 2022 fiscal was registered at 18.3%, lower than the previous fiscal. However, it is noted that the farmers income has been increasing steadily. In the fiscal year 2022, the crops sector had a GVA share of 55.33% in the agriculture and allied sectors.

The non-farm sector (livestock, fisheries, food processing, etc.) is imperative in developing rural areas as a supplementary measure, not substituting agriculture entirely. This measure is essential for preventing rain shocks detrimental to a good harvest.

The real rural wages contracted in FY23 (till November 2022) owing to inflation, but they are expected to improve gradually with the easing of international commodity prices and domestic food rates. On the other hand, nominal rural wages have been increasing steadily. The YoY growth rate of nominal wage was 5.1% for men and 7.5% for women during April-November 2022, while in non-agricultural activities, the growth of nominal wage rates was 4.7% for men and 3.7% during the same period.

Rural revitalisation is a promising area for achieving the twin objectives of becoming a US$ 5 trillion economy as well as Atmanirbhar Bharat.

Rural revitalisation requires a transformative approach that envisions improving rural areas working and living conditions.

The Economic Survey 2022-23 notes that 65% (2021 data) of the countrys population lives in rural areas, and 47% depends on agriculture for livelihood. Thus, the focus of the Government on rural development is pivotal for development.

The Governments emphasis has been on improving the quality of life in rural areas to ensure more equitable and inclusive development. The Governments involvement in the rural economy has been to transform lives and livelihoods through proactive socioeconomic inclusion and integration and empower rural India.

Indian Women: a force to reckon with

When economic growth is discussed, it is uncritically characterised by numbers only, which can be a very superficial growth parameter. Work like care and affection are considered irrelevant and redundant because it passes unacknowledged unless it holds monetary value.

An undeniable truth, particularly in India, is that women have been tirelessly performing the unpaid work of domestic care, and this contribution remains unvetted. Women provide the nourishment that men require for work.

If it hadnt been for this care, especially during the pandemic, surviving through those years becomes questionable. Women are always associated with the emotional end of labour and are confined to household responsibilities letting go of their aspirations.

Women constitute roughly half of the economically active population. Their potential is massive. However, that has not been harnessed entirely. Unlocking this enormous and untapped potential could work as a catalyst in achieving goals set under Sustainable Development Goals.

In addition, enhancing womens economic participation is essential to foster overall growth.

As per NSS 68th Round, there is a significant difference between the average wages/salary earnings of regular/salaried employees in the age group 15-59 years in rural areas. These wage rates are Rs.201.56 and Rs.322.28 per day for female and male employees in rural areas, respectively.

In urban areas, often, the men are earning enough, which results in the discouragement of women from taking up work. This is highlighted by examining the female labor force participation rate at 25.1% in 2020-21 compared to the Rural Female Labour Force Participation Rate of 27.7% in 2020-21.

A survey mentioned that women are increasingly getting involved in work they wont get paid for; 84% of womens working hours are spent on unpaid activities. While for men, the reverse is true. More than 80% of a mans time is spent in activities for which he will get paid.

Overcoming the notion of glorifying only men who make money while conveniently ignoring women and their endeavors of nurturing families becomes essential to attain an accurate picture of growth. The progress of an economy should also consider these remote, invisible work/labor of love to avoid underestimating womens contribution to society.

"Little by little ... and with most unjust and cruel opposition... it is being gradually established... that human work is womans as well as mans."

-Charlotte Perkins Gilman

Women are not destined to perform unpaid household chores only; only men are not the breadwinners. Society has to transcend these gender roles for equity and access to all forms of capital.

Microfinance and Women: The relation between microfinance and women is extremely potent, as women strive to lift themselves, as well as their families, out of poverty to improve their quality of life.

Access to financial capital through NBFC-MFI to financially establish herself gives a woman a greater sense of self-worth and places them in a confident demeanor to make their own decisions.

An increase in womens participation in the economy makes them socially and politically involved, and they lead by example for other girls and women, encouraging them to take a stand for their prosperity.

Often is the case that opposing the rigid societal norms of women being confined in their household causes domestic violence. However, it has also been discovered that womens participation in microfinance has enabled them to alleviate their families out of poverty, increasing their household prosperity and thus decreasing chances of domestic violence.

As women prosper, they invest in the education and health of their children and uplift women in their communities. Thus, a propelling nation is observed when women create a significant impact with small loans.


Female workforce participation - Men contribution to household - Microfinance & women -


Caught in a vicious cycle initiated by the local informal money lenders, borrowing became a problem for rural dwellers who were burdened with heavy interest rates, which kept accumulating overtime. This gradually brought the next generation into a debt trap, causing a perpetual state of poverty. The emergence of the Microfinance industry has been a harbinger of hope among rural dwellers, getting easy accessibility to funds at an affordable rate.

A revolution in rural India was sparked with the emergence of the Microfinance industry. It harbors the vision of bridging the gender divide by providing collateral-free credit to rural women and promoting financial inclusivity.

Though the microfinance delivery system is relatively small within the financial sector of the economy, the impact that it causes is quite massive. Its contribution to employment accounts for an estimated provision of 128.46 lakh jobs. It is rightly said, "Little drops of water make the mighty ocean," which is synonymous with the functioning of the microfinance industry.

Strengthening the capabilities of the lower income groups by encouraging them to benefit from new opportunities for income growth could accelerate the progress of the population at the bottom of the income spectrum in a sustained manner and build the resilience of this population to external shocks. Thus, poverty alleviation, women empowerment and rural financial inclusion are the key pillars upholding the purpose of this industry.

The projected contribution of the microfinance sector to overall GVA, including the backward & forward linkages by 2025-26, would be a significant 2.7% in the base case scenario and nearly 3.5% in the best- case scenario.


Despite high inherent business cyclicality, the microfinance industry reported a healthy 24% CAGR over FY18-23. Industry growth further improved in FY23, with total disbursements amounting to Rs.3.0 trillion of microfinance loans in FY23.

Growth in the microfinance industry has been driven by an increase in the number of unique borrowers and a rise in ticket size. We note that the number of loan accounts increased ~130m in FY23 from 93m in FY19, while the number of unique borrowers increased to 66m as of FY23 from 49m in FY19.

Among major retail segments, microfinance loans have grown faster than other categories, such as credit cards, housing loans and auto loans. The share of microfinance loans within total credit stood at 1.3% as of FY23, up from 0.9% in FY18.

The microfinance industry witnessed a sharp deterioration in asset quality due to Covid-19. The PAR-30+ book, which stood at ~1.3% before Covid (Dec19), increased to 14.8% in Jun21 (2nd Covid wave). Flowever, with improvement in the macro environment and the collection run rate, the PAR >30 book improved to 2.2% as of FY23.

Loans from NBFC-MFIs grew at the fastest pace over the past three years, with a 23% CAGR to Rsl .4 trillion as of FY23, while loans from banks saw a 9% CAGR to Rs.1.19 trillion over the similar period (past three years). As a result, NBFC-MFIs have gained market share, while other players have witnessed moderation.

The mix of NBFC-MFIs in total microfinance loans improved to 40% in Mar23 from 31 % in Sep19, while the share of banks moderated to 34%.

As per CRISIL, the microfinance industry will likely post a CAGR of 18-20% over FY23-25 to Rs.5.1 trillion, with NBFC-MFIs set to grow faster.

Andhra Pradesh and Telangana were opened up for the industry as the dual regulatory framework was lifted, and clarity on regulatory authority was provided. These have emerged as big positives, which the players selectively tapped on a low base.

CareEdge ratings have projected a healthy growth of 25% of the NBFC-MFI sector in the upcoming fiscal. The MFI sector is geared to deliver 20%+ AUM growth and 4%+ sector RoA by FY24E.

The microfinance industry caters to a vulnerable segment, which keeps the industrys performance highly volatile. The industry has seen several crises, such as loan waivers, demonetisation, NBFC liquidity issues, CAA agitation, natural disasters and Covid-19, which caused a significant deterioration in the asset quality. However, recoveries have also been quick; thus, the industry has maintained healthy profitability during such cycles.

Resilience demonstrated by the Microfinance sector in the last decade.

The MSME Panorama

A significant contributor to the socio-economic development of the country, Micro, Small and Medium Enterprises (MSME) has gradually gained considerable importance as drivers of Indias economic progress. The MSME space brought in a wave of entrepreneurship which resulted in developing the semi-urban and rural areas.

MSMEs are steadily sprouting in India, with a current estimated count of 7.9 million. They contribute 33% of the countrys GDR accounting for around 120 million jobs across industries and regions.

The progress of MSMEs is hindered owing to the lack of adequate finance. Estimates suggest that a minuscule segment of the MSME universe can avail of finance at reasonable rates. The total debt demand is estimated at more than US$1,500 bn. Of this, the demand for small ticket loans (Less than Rs.1 mn) is a whopping US$120 billion.

The Government has taken multiple steps to bridge this gap. They include:

• Pradhan Mantri MUDRA Yojana (PMMY) is a scheme introduced by the Prime Minister in 2015 to offer MUDRA loans to small and micro non-farm enterprises and non-corporate sectors of up to Rs.1 million.

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides collateral-free loans to MSMEs up to Rs.20 million, launched in 2000. The scheme was revised with the infusion of Rs.90 billion in the corpus in 2023.

• The Emergency Credit Line Guarantee Scheme (ECLGS) was launched in 2020 to support MSMEs affected by COVID-19. It offers collateral- free loans of up to Rs.50 million to eligible MSMEs, with the Government providing a credit guarantee of up to 100% of the loan amount to banks and NBFCs.

• India Stack, especially JAM, i.e., Jan Dhan-Aadhaar-Mobile, a GOI initiative intended to plug the leakages of government subsidies, has helped MSMEs immensely.

Mindful of the burgeoning opportunity, nimble NBFCs have capitalised on the bullish industry trends and favorable policy initiatives by aggressively growing their branch networks to reach New-to-Credit customers across Indias length and breadth.

NBFCs have the mindset to go deep into the countrys hinterlands and serve non-prime customers. They operate with a strong customer-first philosophy and proprietary underwriting mechanisms, which help mitigate risks associated with underwriting this segment. Their proximity to small-ticket customers has been essential for their customercentric approach.

Furthermore, well-performing NBFCs have healthy capitalisation, i.e., robust balance sheets backed by continuous equity infusions. This makes them well poised to serve small ticket borrowers.

Several nationwide operative reforms are expected to catalyze future growth for MSME lenders. MSMEs are increasing their digital footprint, making it easier for lenders to verify and underwrite their identities. With policy initiatives, technology- led customer convenience, and rising awareness and aspirations across the length and breadth of the country, nimble MSME lenders are expected to grow at 25% y-o-y for the foreseeable future.

About the Company

Arman Financial ServicesLimited: Believing in Small Dreams.

Arman Financial Services Limited is an RBI-registered Category a Non-Banking Financing - Asset Financing (NBFC-AFC) Company. It provides financial assistance for the purchase of two-wheelers to the MSME segment. Its wholly owned subsidiary, Namra Finance Ltd (NBFC- MFI), offers microfinance to women for their enterprises. The Company has a footprint across eight states focusing on rural and semi-urban pin codes.

The Company focuses on small-ticket retail loans to the large underserved informal segment customers in rural & semi-urban/peri-urban geographies. It has entirely in-house operations with bottoms- up-driven credit appraisal models and rigorous collections practices tailored to its areas of operations.

Business vertical


Through its subsidiary Namra, Arman provides small ticket loans to women borrowers for incomegenerating activities.

Operating model Operating presence
• High touch monthly collection model 8 states
• Rural concentration 85% rural and semi-urban portfolio 274 branches
5.5 lakh active customers
• 100% Cashless disbursement
• Customers form JLG groups
• Loan utilisation checks to ensure loan for income generating purpose

In the first full Covid-free year, the business vertical performed exceedingly well. The strong uptick in agriculture also boosted the sentiments of the rural markets. As a result, demand increased significantly as rural India was back in business with renewed vigor to compensate for the financial adversities consequent to the pandemic that plagued the nation for two consecutive years.

The Company added 45 new branches to strengthen its footprint in the eight states of its presence. Disbursements increased by 77% from Rs.840 crore in FY22 to Rs.1,485 crore in FY23. Likewise, Assets under Management increased by 59.3% to Rs.1,628 crore from Rs.1,022 crore. Collection efficiency was in at 98% during the year.

The Company has recently piloted a flanking vertical titled Individual Business Loans. Under this vertical, the Company will provide financial assistance to existing women customers (through the JLG model) with a proven track record across multiple loan cycles. This product extension will allow Arman to support its customers through their ambitious journey. Considering the vast repository of customers already attached to Arman through their earlier financial engagement, the new product will emerge as an essential business driver over the long-term.

Business vertical 2

2-Wheeler &

Rural 2-Wheeler Loans

Arman started its business by providing loans to self-employed /cash-salaried customers in the informal segment in semi-urban/rural areas to purchase two-wheelers. Over the years, the Company has developed excellent relationships with dealers and OEMs, allowing it to sustain its presence. The Company recently piloted a new Rural 2-Wheeler product for Tier 3 & 4 below locations.

Operating model Operating presence
Focus on quick turn-around time Only in Gujarat
In house feet on street model for rigorous collections 50+ dealerships
14,810 Active customers

Resurgence in the rural economy, increased liquidity, and positive sentiments increased the demand for two-wheeler loans breaking the two-year dull performance. Owing to the increase in the two wheeler label price across most vehicles, the average ticket size upped by ~7%. Disbursement increased by 26% from Rs.43 crore in FY22 to Rs.54 crore in FY23. Assets under Management also scaled from Rs.46 crore in FY22 to Rs.61 crore in FY23. The Company will grow the business through geographic and new product expansion over the coming years.

Business vertical 3

MSME Loans

Initiated in 2017, this strategic business diversification has been a considerable success for Arman. The Company adopted a careful approach by entering states where it has gathered rich knowledge of the financial, economic, and business culture owing to its microfinance operations. Currently, this vertical generates the highest Return on Assets for the Company. Moreover, with the Government sharpened focus on strengthening the MSME ecosystem, the prospects for this vertical are considerably positive.

Operating model Operating presence
• Dual credit bureau check for both customer and spouse on CRIF (for MFI loans) and CIBIL (for non-MFI loans) 4 states
58 branches
63,917 active customers
• High touch monthly cash collection model
• Cash Flow assessment using tailored appraisal techniques
• Locally drawn field force with personal knowledge of the market
• In-house teams for pre-lending field investigations and appraisals with centralised final credit approval

The vertical continued to grow at a healthy uptick. Disbursements increased by 62% from Rs.140 crore to Rs.228 crore, while

Assets under Management grew by 54% to Rs.255 crore. The Company is focused on growing this business with a focus on quality underwriting and rigorous collection to ensure asset quality.

Risk management 1

At Arman Financials, risk management is a continuous process embedded in the Companys operations covering the Enterprise, Functions, and branch offices.

To identify and mitigate risks, the Company has laid down an Enterprise Risk Management (ERM) policy and framework, which provides guidelines to define, measure, control, mitigate, and report the identified risks at the enterprise level, which may impact the achievement of strategic /enterprise level objectives.

Growth risk

Sustaining business growth could emerge as a challenge.

Mitigation measure

• A stable rural ecosystem coupled with large credit demand promises healthy prospects for the microfinance business; expanding into newer territories will also generate decent volumes.

• Growing industrialisation creates many opportunities for MSMEs to grow; their fund requirement to capitalise on emerging opportunities should drive business volumes.

Process risk I

Increasing business volumes could adversely impact process efficiency.

Mitigation measure

• The organisation-wide digital solutions deployed in FY23 have been a bouquet of strategic initiatives to improve process efficiency while handling increased business volumes.

• Investing in contemporary IT solutions has resulted in complete automation of mundane processes, eliminated human intervention and significantly reduced the TAT (Turnaround Time) between loan application and disbursement.

Funding risk

The Company will need funds to cater to the growing demand for loans.

Mitigation measure

• The Company has raised equity funds of Rs.115 crore via allotment of Compulsory Convertible Debentures (CCDs) and Optionally Convertible Redeemable Preference Shares (OCRPS) on a preferential basis during the current fiscal to ensure a comfortable Debt-Equity ratio.

• It also proactively maintains a large amount of cash liquidity to meet unexpected liquidity shortages in the market. Additionally, the Company had a naturally positive ALM ratio.

Geographic concentration risk

More than 50% of the business comes from two states.

Mitigation measure

The Company practices a cautious approach to extending its footprint into newer regions. While geographic de-risking is a priority for the management, it will happen gradually as the Company gains a deeper insight into the cultural and financial ecosystem of the region. The Companys recent entry into Bihar and Haryana is a step towards geographic de-risking. In Fiscal Year 2024, the Company is planning to enter two additional states.


concentration risk

More than 80% of the business comes from the microfinance vertical.

Mitigation measure

Mindful ofthis concentration, the Company is focused on increasing its MSME loan portfolio. Also, it has added two sub-verticals, namely, individual business loans and rural 2-wheeler loans which should emerge as growth levers over the long term. The company will continue to explore other businesses that align with our core strengths.