One man’s journey stands out as a beacon of hope for millions in a world driven by financial complexities. Arunkumar Padmanabhan, a visionary entrepreneur originally from Chennai, South India, has carved a niche for himself in the financial services sector.
Arun has also become a catalyst for positive change in the lives of thousands. In this captivating interview, he shares his remarkable journey from the traditional corridors of banking to the frontlines of social entrepreneurship, demonstrating that impactful business can be the bridge to a more inclusive society.
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Early Life and Career Beginnings
Arunkumar’s roots in a conservative Indian family and his initial foray into corporate and commercial law might seem like a conventional start. He recalls his father working in financial services and himself going to school that was heavily focused on academics and less on sports and extracurricular activities.
Arun considers his upbringing to be standard in a traditional South Indian family. He did his entire schooling and college under graduation in Chennai. He then went to Pune in Western India to study and qualify in law. However, his vision was anything but ordinary.
Driven by a desire to make a difference in financial services, Arunkumar strategically entered the commercial banking sector, setting the stage for a transformative career that would eventually end in entrepreneurship.
Working at ICICI Bank
Arun’s six-year tenure in ICICI Bank, India’s largest private sector bank, marked a pivotal moment when he played a key role in establishing international banking operations.
Witnessing the exponential growth of the bank from zero to $5 billion during this period, Arunkumar’s appetite for impactful ventures began to take shape.
Arun recalls how ICICI Bank had operations only in India, and when it decided to go global, he was part of the team that set up international banking. Arun was tasked with providing legal support as part of the team, which led to trips to different countries.
The team set up a wholesale bank, consumer bank, or wealth management business in various locations depending on the local laws, licenses, and permits they could acquire and the strategic fit. This stint exposed Arun to the business’s socio-economic and social developmental aspects.
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From Corporate to Social Entrepreneurship
While excelling in the corporate world, Arunkumar’s heart was drawn to social causes. Volunteering with nonprofit organizations in two slums of Mumbai, he experienced firsthand the challenges faced by low-income communities.
Arun remembers volunteering at Aid India, which has chapters in Mumbai and several other global locations. The organization is essentially a student body comprising Indian expatriate students who went abroad to study. They formed Aid India to help low-income groups in India.
The pivotal moment came during the floods of 2005 when Arunkumar actively participated in relief and rehabilitation efforts, realizing the need for a more substantial, long-term impact. He was also looking for solutions since his volunteering efforts were impacted by his work travel.
Although he wanted to work on his project as a full-time career, his background was in financial services.
The Genesis of Svasti
Driven by a vision to merge financial services with social development, Arunkumar embarked on an entrepreneurial initiative somewhere between 2005 and 2006.
At this time, he met someone from the Michael & Susan Dell Foundation, who expressed an interest in providing a small grant support.
That is if Arun set up a microfinance company that would work in the slums of Mumbai and focus on empowering women entrepreneurs in Mumbai’s urban slums. So, he quit his bank job in 2007 and started Svasti Microfinance with his co-founder, Narayanan Subramaniam.
Arun explains how they started Svasti as a not-for-profit initiative because they did not have the minimum capital that’s required to set up a regulated financial institution to do this business as a commercial or a for-profit initiative.
The strategy was to demonstrate that this is a viable business opportunity, which is microfinance in urban slums in Mumbai, so Arun and Nara set it up to a certain size and scale. It took them nearly two years to build a small portfolio and demonstrate that this is indeed working.
They successfully demonstrated that the people who are borrowing are indeed repaying and had a 100% repayment record. During this time, they built a small portfolio of around $250,000, touching 3000 borrowers.
Arun and Nara were able to go to commercial private equity or find share capital investors and show that the model was viable and capable of scaling. They also built the technology for the business from the ground up.
The Transition to a For-Profit Organization
Sometime in 2010, Arun and Nara prospected and raised commercial capital for this business and made it into a for-profit. The duo got a commitment from investors for funding, so they created an entity and acquired the necessary licensing.
The transition was fairly streamlined and quick and was completed within five to six months. Arun talks about how they always intended to set up a large, scalable, sustainable, profitable, and high-impact company.
The duo borrowed money from banks and institutions in India and abroad and also used their own capital. Using this pool of resources, they lend to only women.
The Svasti Model
Svasti’s mission is clear – to provide financial inclusion to women in the low-income segment, allowing them to build and grow their small businesses. With an average loan size of $500 to $1200, Svasti targets women with monthly incomes ranging from $125 to $400.
The loans are unsecured working capital, but the model incorporates a group guarantee, fostering a sense of community responsibility. Groups of five women who are neighbors and friends act as collateral and security for one another.
The success of Svasti lies not just in financial support but in holistic empowerment. Borrowers typically repay the loan within 12 to 24 months, and payments are made in equated monthly installments via weekly or monthly collections.
Earnings and expenses are undocumented and in cash, and they typically earn a small income of $25 to $400. Beyond loans, the company offers medical insurance, addressing the vulnerability of these entrepreneurs to unforeseen health crises.
Svasti offers Hospital Cash Coverage, giving them daily income support worth $40 per day of hospitalization.
The renewal rate of over 70% speaks volumes about the impact and sustainability of Svasti’s model. Borrowers who successfully complete one loan cycle qualify for higher loan amounts.
Svasti uses its income to repay investors, meet operating expenses and credit costs, and cover losses. But it also makes profits.
Fundraising for Svasti
Arun reveals that they have equity in the business, have raised around $20M, and also have accumulated profits over the years. Svasti’s network worth is between $27M and $30M. Its portfolio is worth around $130M, funded by $120M of borrowing and around $28M in net worth.
Since 2008, Svasti has made loans worth $545M. It has around $130M in outstanding loans made out to 425,000 borrowers. The company has more than 2000 employees and operates out of 142 branches. Each branch has 10 employees, engaging around 4000 borrowers.
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Scaling Operations and Human Capital
Scaling a business requires more than just financial acumen; it demands a dedicated team. Arunkumar emphasizes the people-centric nature of Svasti’s operations.
With a rigorous training program, the company ensures that its employees, often from similar backgrounds as the borrowers, are equipped with the skills needed for customer engagement and credit assessment.
Svasti’s commitment to being a great workplace is underscored by its recognition as a “Great Place to Work” certified company four times in a row.
The vision of “People First” permeates the organization, ensuring not only financial inclusion for clients but also meaningful career progression for employees.
Challenges and Future Vision
Arunkumar acknowledges that raising capital is a significant challenge for aspiring entrepreneurs. Reflecting on his journey, he advises future visionaries to plan meticulously and secure substantial resources early in the game.
Despite facing obstacles, Svasti has managed to thrive, offering financial services to thousands while navigating industry vulnerabilities and external challenges.
Arunkumar’s overarching vision is clear – to make the right to finance accessible to everyone, regardless of their income or circumstances.
In a world where financial inclusion is often taken for granted, Svasti stands as a testament to the belief that small loans can lead to significant transformations, fostering economic independence and resilience.
Arunkumar Padmanabhan’s journey is more than a success story in the financial services sector; it’s a testament to the power of visionary leadership and socially responsible entrepreneurship.
Svasti’s impact on the lives of thousands of women entrepreneurs in Mumbai’s slums exemplifies the transformative potential of combining financial inclusion with a people-centric approach.
Arunkumar’s story inspires us to rethink the possibilities of business, encouraging a future where profitability aligns with positive societal change.
Listen to the full podcast episode to know more, including:
- Arunkumar Padmanabhan’s journey from traditional banking to social entrepreneurship demonstrates the power of aligning financial services with impactful social initiatives.
- Svasti’s microfinance model empowers women entrepreneurs in Mumbai’s slums, providing unsecured loans with a community-driven group guarantee.
- Beyond financial support, Svasti’s holistic approach includes medical insurance, addressing the vulnerability of entrepreneurs to unforeseen health crises.
- Scaling operations successfully, Svasti emphasizes a people-centric business model, offering its employees rigorous training and meaningful career progression.
- Arunkumar’s advice for aspiring entrepreneurs underscores the importance of meticulous planning and securing substantial resources early in the venture.
- Svasti’s vision goes beyond profits, aiming to make the right to finance accessible to all, irrespective of income or circumstances.
- Arunkumar’s journey is a testament to the transformative potential of small loans, fostering economic independence and resilience in marginalized communities.