Mahindra Rural Finance Case Study

Mahindra has created a financial product that helps base of the pyramid borrows get access to housing loans.

Mahindra has created a financial product that helps base of the pyramid borrows get access to housing loans.

Kunj Bihari recalls the terror of life without reliable shelter. Pushed to the limit by insecure rental accommodation and an aggressive landlord, the resident of rural Rajasthan saved hard to buy a piece of land. But when he achieved that dream, another nightmare followed: out of savings and rejected by a string of lenders, he had no money left to build a house.

Relief eventually came when a team from Mahindra Rural Housing Finance visited Bihari’s village and assessed his capacity for repayment. Within five days of applying, he had secured a loan. Finally, Bihari’s family had a secure roof over their heads.1

Rural India is desperately short of homes, with as many as 62 million households lacking decent shelter in 2012.2 The consequences are awful: poor housing often means poor sanitation too, as well as greater vulnerability to crime. But despite this clear need, millions of rural Indians are unable to access finance to build or improve their homes.3 Mahindra, one of India’s largest family-owned conglomerates, is striving to change that. Its mortgages for rural customers are transforming lives and making healthy profits,4 tapping into India’s long tradition of philanthropic but business-savvy family-owned firms.5

The company’s fixed-rate packages are specially designed for the target group. Rather than rely on formal credit histories, for instance, Mahindra makes loan decisions based on ‘observable’ assets and lifestyle. And it lets farmers link repayments to harvests, allowing six-monthly installments and doing away with early payment penalties – meaning a bumper crop can be used to save interest.6 Crucially, it is closely attentive to individual needs, helping clients in everything from understanding the basics of home finance to getting hold of the documents needed to secure a loan.7

The company is on track to hit 500,000 customers by 2017, with a loan portfolio worth US$500 million.8 By 2020, it aims to double both these figures. The benefits to society are broad. A quarter of clients have switched to modern sanitation facilities, for instance, while loans are helping to empower women, who made up 75% of co-applicants in 2014-15.9 Mahindra has also created thousands of jobs.

The company has made healthy profits since 2009, and puts its success partly down to being the first mover in an untapped market.10 But by building on India’s history of socially minded family firms, it is also bringing life to the concept of ‘shared value’, showing that truly serving the community is the key to a thriving, modern business.11 For Mahindra’s chairman, Anand Mahindra, India’s social challenges – and opportunities – make it a natural “playground” for this approach. “We are seeing that creating shared value is a powerful business strategy that can deliver both profit and social impact,” he says.12

References

1 Mahindra Home Finance. “Stories and Testimonials”. http://www.mahindrahomefinance.com/stories.php.

2 Kumar, A. (2014) “Estimating Rural Housing Shortage”. Economic and Political Weekly, Volume 49, Issue 26-27, 28 June. http://www.epw.in/journal/2014/26-27/review-rural-affairs-review-issues/estimating-rural-housing-shortage.html. 

3 Business Call to Action. “Case study: Mahindra Rural Housing Finance Ltd: Making Home Loans Available to Poor People”. http://www.businesscalltoaction.org/wp-content/files_mf/bcta_casestudy_mahindra_web.pdf.

4 Ibid. 

5 Chahoud, T. (2007) “Corporate Social and Environmental Responsibility in India – Assessing the UN Global Compact’s Role”. German Development Institute, February. http://www.die-gdi.de/uploads/media/Studies_26.pdf.

6 Business Call to Action. “Case study: Mahindra Rural Housing Finance Ltd: Making Home Loans Available to Poor People”. http://www.businesscalltoaction.org/wp-content/files_mf/bcta_casestudy_mahindra_web.pdf.

7 Ibid. 

8 Ibid. 

9 Ibid. 

10 Ibid. 

11 Cantegreil, M., Chanana, D., Kattumuri, R. (2013) Revealing Indian Philanthropy. UBS and LSE Indian Observatory, Alliance Publishing Trust. https://www.ubs.com/content/dam/ubs/global/wealth_management/philanthropy_valuesbased_investments/indian-philanthrophy.pdf.

12 Ibid.