This Small Finance Bank Is Looking To Set Up Internal Rating System For MSME Lending The bank is ultimately aiming for a loan book of INR 20,000 crore along with listing on bourses by 2020

In the early 90s, when K Paul Thomas started Evangelical Social Action Forum or ESAF – as a social credit program, little did he know that the society will form a microfinance institution to Kerala's first small finance bank.

Thomas, the Managing Director of ESAF Small Finance Bank was previously working with IIFCO, has always been exposed to agriculture and rural marketing. However, in the 90s, microcredit was a fairly new term and hence, raising funds was one of the biggest challenges ESAF faced.

"People, including the bankers, didn't understand microcredit and hence, nobody was willing to fund us. And in 1998, Grameen Trust from Bangladesh came to our rescue and helped us with seed capital of $40000 followed by Bank of Baroda," Thomas said to BIZ Experiences India.

EASF began its operation earlier this year in March and it was among 10 entities that received a license to set up a small finance bank from the Reserve Bank of India. These days, the bank is busy converting or merging its existing MFI outlet to retail bank unit along with increasing its reach.

The Shift

From an MFI to bank, the journey has been very challenging for the EASF, especially in terms of identifying the right technology, right kind of people along with upgrading the skill set of the existing resources.

"As MFI, we were operating with loan management system but as a bank, we need multiple solutions," he said while adding that "We had people who were good in the mobilizing the community and providing loan-related services. However, to operate as a bank, we require high-quality talent who understands risk management."

Meanwhile, the bank facilitates micro banking, doorstep digital banking, and internet facility for the public rural areas along with traditional banking instruments.

What Next

The bank will also start its micro, small and medium enterprises (MSMEs) lending platform where ESAF is looking to cater mostly to micro-sized companies with loan products ranging between INR 10-25 lac.

"Since many of micro firms are not organized, so, the banking is also looking to develop an internal rating system which leading to a pleasant experience," the first generation BIZ Experiences added.

Additionally, the bank is looking to raise about INR 150 crores through tier II bonds by end of this year along with Rs 350 crore via private equity next year. The proceeds from the funding will be used for operations and expansion activities.

After widely servicing retail clients in the rural areas of Kerala and Tamil Nadu, Thomas is now looking to extend the banking services to Delhi, Orissa, and North East states, starting Assam.

The bank is ultimately aiming for a loan book of INR 20,000 crore along with listing on bourses by 2020. Its present loan book is of about INR 3200 crores.