Agora Microfinance India: Resilience in the face of COVID

Agora Microfinance India Limited (AMIL) is nearing the end of its financial year 2020 having withstood the crippling challenges of COVID and is all set to emerge as a stronger, larger and much more diversified institution in 2021.  It has undertaken a range of steps to address both the immediate challenges as well as to look beyond the present and continue its quest for becoming a meaningful partner for urban clients in Mumbai and beyond.  This note outlines the main steps it has taken, and how these position AMIL for a strong recovery and a brighter future ahead.

When the pandemic struck and India went into a lock-down in mid-March 2020, the epicentre of the pandemic was Mumbai, where most of AMIL’s activities are situated.  It saw a complete break applied to its activities for a long period lasting until June 2020, and a slow return to business thereafter.  Things have picked up at a faster pace since September 2020, and AMIL is now able to see the impact of the pandemic more clearly than was possible a few months ago.  During this period, AMIL has carried out several activities to manage the current challenges but also to prepare for 2021 and beyond.  A large part of the credit for its resilience is due to its coordinated response which has included its Board, leadership, management and staff, who have planned every stage of the recovery together throughout this period.  A special word of appreciation is due for the staff of AMIL at branches and in the head office, who have weathered substantial challenges and bottlenecks to keep the business operating despite the unprecedented nature of the challenges posed by the pandemic. 

Its activities can be listed under the following themes.

A.   Actions taken – five critical themes during the pandemic

1. Understand client and staff state of being

Before rushing to any decisions with regards to loan collections and new disbursements, AMIL carried out – and continues to do so – frequent client surveys to better understand how its clients were being affected with the pandemic and the local area rules that applied to their livelihoods.

In particular, the following detailed surveys were carried out:

• April-May 2020: Telephone interviews of 1,906 clients
• July-August 2020: Telephone survey of all 23,867 clients
• September 2020: Staff Survey of all staff

In all the surveys, the focus was primarily on understanding three aspects of client or staff well-being:  a) Health and Family, b) Income and Livelihoods, and c) Future Plans in relation to these.

The surveys provided crucial and timely insights to AMIL, and at the same time conveyed to clients and staff that AMIL was concerned about their well-being.  Some of its actions and decisions that followed these surveys conveyed this in an even more concrete manner.  These decisions are highlighted later in this piece.

Thanks are due to AMIL’s Internal Audit and Operations departments, led by Aman Singh and Abhay Singh respectively, who led the survey design, execution and the necessary follow-ups.  On AMIL’s Board, its Directors with the relevant expertise were closely engaged in guiding the design and advising it on follow-on steps.  In particular, Frances Sinha and Meenal Patole provided timely and critical guidance and made valuable contributions during this period.

2. Support clients and staff

AMIL determined early on during the pandemic that none of its staff will be retrenched, given the extreme hardships that would be experienced if decisions were taken with a view only to short-term goals.  Several decisions and steps were instituted to protect the well-being of clients and staff to the extent possible.  Some of the key decisions that have been taken and executed during the past months are as follows.

For Clients

• Creation of multiple digital channels for loan payments for clients whose livelihoods were still functioning and who wanted to continue repayments during the periods when the offices could not open.
• Gradual resumption of loan disbursements for clients whose small enterprises were operational and who needed additional capital.
• Relaxation of collection requirements to allow partial payments from groups without the invoking of group guarantees.
• Establishment of enhanced client protection and grievance monitoring to ensure that no undue pressure was applied for repayments.
• Monitoring through regular phone contact (by Internal Audit department) to ensure the above measures were being applied uniformly.

 For staff

• Early communication to reassure all staff that no redundancies or retrenchments would be carried out resulting from pandemic related challenges.
• Adaptation of staff incentives to reward client contact and relationship management over collection efficiency.

As a result of these and other such steps, AMIL has seen a gradual but consistent return to (partial) normalcy in its business, as reflected under Results and Outcomes later in this piece.

3. Prioritise cash planning and lender relations

A major challenge with the onset of the pandemic was the drying up of cashflows.  Operations had come to a complete halt during March-June, and client repayments only began trickling in shortly after.  Even in August, the collections on loans remained quite low.

During this period, most lenders were able to extend the moratorium on their credit lines to AMIL.  However, there were also lenders who needed repayments on their loans, usually because they had not received their corresponding moratoriums from their own lenders.  As a result, a great deal of time and planning was spent on communicating with lenders and also managing liquidity while honouring repayments where it was absolutely necessary.

The AMIL Board worked very closely with the management during this period to manage liquidity in a prudent manner, but also to ensure that the relationships with lenders did not get frayed during these tense months.  Asit Mehta and Pradeep Sarin, both Independent Directors, spent substantial amounts of their time guiding the company during this phase, and their inputs have been critical in the management of liquidity under such unprecedented market conditions.

On the part of the management, both our CEO Manoj Naval, as well as our CFO Yash Dhuru were in regular conversations with lenders and ensured that AMIL remained sufficiently liquid during the period while maintaining its goodwill and relationships in the funding market.

4. Enhanced governance and oversight

Once the pandemic struck and the lock-down was in force, the AMIL board unanimously agreed to weekly review meetings (via conference calls) to keep abreast of the rapidly evolving environment.  This was a substantial investment of time and effort, especially for AMIL’s Independent Directors who also voted unanimously to waiving their own sitting fees during this period.  Their commitment has gone a long way in assisting AMIL’s recovery.

During the past 8 months, the Board of Directors has guided and directed the management on a wide range of issues.  In addition to the client & staff surveys, cashflow management and lender relations, this has included oversight on COVID preparedness of offices, changes to staff incentives, recovery planning, short-term and longer-term business planning, oversight on cost efficiencies, and review of strategies for the post-COVID environment.

5. Shareholder support during critical periods

AMIL’s principal shareholder, Agora Microfinance, has also played a crucial role in showing its own commitment to the well-being of the company and its staff and clients.  It has provided both debt and equity support during the period, at a time when funding has been hard to come by.  In addition, the shareholders have been fully aligned with the company’s decisions in relation to staff retention and responsible collection practices.  The Shareholder has also supported the company by assuring its lenders as reflected through its own continued commitment.

B.   Results and Outcomes – recovery is underway

As a result of the efforts of the AMIL team, its leadership and its Board, its performance is on a definite upswing as we approach the end of its financial year in December 2020.   Loan collections have improved every month since the start of the pandemic, loan disbursements have been gradually re-introduced, the company is keeping a keen eye on its efforts to diversify the loan book by focusing on new regions, and AMIL continues to remain profitable in the current year after having managed operating costs carefully, though this is likely to come under pressure once the full impact of late or missed collections is reflected on its books, expected from December 2020 onwards.

1. Improved loan collections

AMIL has registered improved collections every month, with collections reaching 75% in the month of November and expected to continue improving in the coming months.  This improvement has allowed it to slowly begin planning for a post-COVID market environment with more certainty than was possible in the earlier months of the pandemic.

2. Loan Disbursements

As collections have improved, AMIL has begun cautiously disbursing new loans.  The new loans are currently being offered only to clients whose livelihoods are still active and who have been able to service their existing debt on time.  Clients who have finished paying their previous loans are therefore being prioritised, though a few new clients are also being included especially in the Nashik region with a view to gradual diversification of the portfolio which continues to have a large exposure in the Mumbai region.

3. Portfolio diversification

AMIL is consciously making efforts to diversify its portfolio across different geographic regions.  The first part of this strategy has included efforts to establish the Nashik region, and new branches are planned in additional regions during the coming months.  Given the nature of economy of Nashik (agriculture), this will be a welcome diversification of the portfolio in terms of risk exposure.

4. Profitability/business continuity

AMIL has undertaken strict measures for cost control this year, and has delayed or deferred larger costs wherever possible, such as delaying the move to new head office, and the upgrade of its core banking system.  It has also renegotiated existing office lease agreements wherever possible.  Careful cost management has given it some breathing space when loan loss provisions make their full impact felt, mostly during December 2020 and March 2021.  At present, it estimates that the year-end (December 2020) financial statements will still show a small profit with a Return on Equity between 2%-4%, however much will depend on further improvements in loan collections as well as disbursements.

In overall terms, AMIL has withstood much of the impact of the COVID thus far, and while the full impact of the pandemic is not reflected on its financial statements yet, much of its present challenges are being addressed well.  The current financial performance reflects its abilities in managing customer and lender relations, both of which are critical to its future success.  As an when collection rates reach 90%, lenders will likely show further confidence in its operations and fund flows will improve commensurately.  The plans for 2021 estimate a strong rebound after March 2021, with further geographical expansion and growth in new areas of operations.