The strategy used by Thiyagarajan, the founder of Sriram Group, is unexpected. By financing to individuals who banks disregarded, he has amassed a sizable business empire.
The founder of Sriram Group, R. Thiyagarajan, has helped those with modest incomes while banks have closed for the most part.
Among the world’s most exceptional financiers is R. Thiyagarajan. The multibillion dollar financial business group Sriram, which he founded in a sector where many others throughout the world have failed, has prospered beyond belief.
As a trailblazer in providing trucks, tractors, and other automobiles to impoverished Indians, Thiyagarajandeveloped Sriram into a conglomerate that now employs 1,08,000 people in a variety of jobs, including stockbroking and insurance.
The flagship Sriram Group stock has increased by more than 35% this year, reaching a record high in July. Interestingly, this exceeds India’s main stock index by four times. Thiyagarajan, who became a consultant after turning 86 today, states in an uncommon interview with Bloomberg:
“The money lending industry, lending to people with no credit history and no regular income, and profiting from it, proves that it is not as risky as others think.”
Nothing about his business style is out of the ordinary. Similarly, he claims it is not extraordinary nor miraculous that he gave up his ownership in a company that is currently worth 750 million dollars.
An examination of common people
The Sriram Group was founded in Chennai, a well-known city in South India, in 1974 by R. Thiyagarajan, who describes himself as a bit of a communist.
“I didn’t start this for those who have it everything already in life. since their lives are already fulfilling. Quite the contrary, I wanted to alleviate some of the resentment from the lives of those who struggle on a daily basis and wonder, “What are we going to do with daily life?”
With 1.4 billion people, India, the most populous nation in the world, has a chance to join the expanding middle class. A quarter of India still lacks formal financial access, despite efforts by Prime Minister Narendra Modi’s administration to increase the country’s access to banking services. The World Bank estimates that one-third of people have bank accounts but never use them.
According to Thiyagarajan, socialism is practiced when the impoverished are praised. However, Thiyagarajan provided loans at modest interest rates as opposed to oppressing the unbanked by charging exorbitant interest rates. But he made an effort to show that the company could be both secure and successful. More significantly, he inspired other lenders to lower their interest rates by doing this.
Beginning with the Sriram Group, microloans for those in the middle class and lower have grown to be a significant industry. There are about 9,400 shadow banks in India. This shadow banking or interest-for-interest-meeting mob preys on those who have deserted established lenders.
However, according to Srinivas Balasubramanian, senior partner and head of corporate finance at KPMG India, Thiagarajan also encompasses people in this role. He claims that “very few people like Thiyagarajan have been able to stay in this business for long.”
Establishing an empire
Thiyagarajan is unique in the sector, in fact. For a man raised in an agricultural family with servants all around him, establishing a credit institution may seem like an odd career decision, but it was motivated by socialist thought. However, Thiagarajan was able to establish such a credit organization since he has always been logical and inclined toward an equitable society.
Before spending three years at the esteemed Indian Statistical Institute in Kolkata, he studied mathematics at the undergraduate and graduate levels in Chennai. He started working for New India Assurance, one of the biggest insurance providers in India, in 1961. He worked for a corporation for the first 20 years of his finance career. Additionally, Thiagarajan was employed by regional lenders JP Boda & Co. and Vysya Bank.
He began lending money along the route to others looking for loans to purchase used vehicles in Chennai. It was his life’s primary pursuit. He started ‘Sreeram Sits’ with his friends and family when he was 37 years old. The majority of the unbanked got their loans and savings via “chit funds.” Each participant in the cooperative savings plan contributes a certain amount each month. Up until each investor receives their portion, the sum is paid each month. The funds are utilized for large purchases, school tuition, or farm equipment. Thiyagarajan started various businesses over time. Eventually, Sriram expanded into an empire, forming a conglomerate of over thirty businesses.
Uniqueness of thought
Thiyagarajan has observed that consumers have made up to 80% of their loan installments while financing trucks. since banks don’t deal with them. He concluded that this was a grave mistake. They believe that because interest rates are so high, lending is too dangerous. However, I soon understood it wasn’t harmful,” Thiyagarajan adds.
His life was determined by this concept. Also, he extended loans at interest rates that were outrageous by global standards. But compared to other possibilities, it is less popular. In other words, interest rates decreased from 30%–35% to 17%–18%,” he stated.
However, Thiyagarajan asserts that his concept founded on two capitalist tenets rather than any altruistic intentions. Two key points are the significance of private sector entrepreneurship and the belief in the principles of the market. He benefited from these two ideas. 98% of the money that was due on time was recovered from the clients. The majority of the stock market’s credit offerings are deemed sound due to its S and B ratings.
India’s new bank accountants are mostly drawn from non-bank financiers such as Sriram. Co-founder of Duara Holdings Bindu Amarnath claims that the company has a gift for loan managing that banks do not. This is an organization that promotes businesses that operate on the premise of financial inclusion.
“Ensuring the participation of the poor and marginalized in India’s formal financial system is critical to sustainably drive economic growth,” Anand stated. Today, almost 23 million people are served by Shriram Group.
With a market valuation of over $8.5 billion, the parent firm, “Sreeram Finance Ltd.,” reported a profit of about $200 million for the quarter that ended in June. If just one out of the 34 analysts following the firm suggests selling it, then you can infer something about its value.
An alternative strategy
Giving to the impoverished might be difficult. Vulnerable debtors are typically pushed farther into debt by excessive interest rates. In India, loan sharks can be quite harsh when pursuing debt collection. Even though the microfinance business has a strong focus on empowering the vulnerable, consumer protection is lacking. When asked what Sriram’s business has changed, Thiagarajan responded as follows:
“We are not considering the ability to pay back the loan. since a large portion of the clientele does not utilize the established financial system. Thus, we provided loans based on recommendations from current clients. Thiagarajan paid his staff comparatively well and kept them content. “I appreciate the comfort, security, and peace of mind this job offers,” Amol Paulekar, the Mumbai branch manager of Sriram Finance, stated. He claimed to have declined multiple offers of well-paying jobs.
“The team has a really compassionate atmosphere. At work, there isn’t any insane pressure, he claimed.
Living simply
Workers claim that Sriram’s approach is just. Thiyagarajan enjoys living in a populated area. He lacks conceit. He spent many years driving a Hyundai hatchback. Not even a cell phone to divert his attention. Chairman Thiagarajan donated all of his Sriram Companies shares to the Sriram Owners Trust, which was founded in 2006, after giving away all of them to employees. The beneficiaries of the Permanent Trust are forty-four trustees. When executives retire, he will take millions of dollars since he loves his staff so much.
The foundation is worth more than $750 million in total. It has multiplied greatly in the last few years. Individuals with knowledge of the situation requested anonymity due to the confidential nature of the material.
Even now, Thiyagarajan regrets that “the stock market price is rising and the company has grown in this way.” Still, fewer people receive the benefits. The socialist Thiagarajan believes that more people should profit from it.
