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January 6, 2017



But short-term impact could be mixed for different segments and businesses
bh-sirVistaar Finance is a Non- Banking Finance Company (NBFC), based out of Bengaluru, India, serving the MSME segment, primarily in rural and semi-urban areas. We believe that by supporting and creating new economic opportunities for deserving small business women and men, lives can be enriched and communities can be transformed.The company focuses on the missing middle segment, which is not effectively served by the formal financial system. The objective is to make finance available at a reasonable cost and deliver in a transparent manner. In the process, Vistaar aims to continuously attract mainstream capital and human resources to serve these chosen segments who are the backbone of India’s vibrant economy.

There are over 40 million MSME in the country contributing to over 40% of the manufacturing output. The total unmet demand is close to Rs. 2.9 trillion, which offers a unique opportunity for Vistaar across micro, small and medium sized enterprises. While banks and NBFCs try and address some of the sector’s credit demand, majority of the total MSME business units constitute Vistaar’s target segment. In spite of being significant segment, less than 10% of them access to formal financial services access.

The views on demonetisation is based on current understanding of market, our customer feedback and feedback from other players including a few banks, NBFCs and rating agencies. Demonetisation of higher denomination notes of Rs. 500 & Rs. 1000 in India from the mid-night of November 8 is a significant step and is expected to impact the economy both in the short and long term. While short-term impact could be mixed for different segments and businesses, we expect long term impact to be positive for the country.

Immediate short-term impact

  • Increase in bank deposits, increase in bank liquidity
  • Increased supply of funds; we expect RBI to announce cut in interest rate and reduction of lending
    rates by banks to customers
  • India being predominantly cash economy, at the lower end of the pyramid, demonetisation is likely to
    impact business and revenues of these customers significantly. Extent of impact could be different for
    different businesses
  • Likely to impact repayment of loans by cash segment – primarily microfinance, MSME customers
  • Expect lower credit growth and lower loan off take during next 2-3 months


However, in the medium term, we expect a boost to the economy. Also, as a country it should have bias in favour of digital money and resultant increase in economic activity, revenues, tax collection etc. Also, government investment in infrastructure should significantly go up and prices of goods and properties could come down. In the medium term, we expect prices will ease, inflation, to come down which should benefit all segments of the society.

As a company, we primarily operate in rural and semi-urban parts of the country, and serve MSME customers. We feel our customers will most likely be affected in the short term. Hence, to understand this, we carried out a survey on November 15 and 16 across eight states and more than six sectors or business activities. These inputs have come from over 100 of our customers.

The survey report from the ground zero depicts that post the decision of demonetisation:

  • Close to three-fourth of our respondents have seen immediate drop in sales
  • About 77% of them expect sales to come back to normal in the next 2 months
  • About 70% feel, it will make them think of an alternative to cash in the medium term, including mobile
    payment and e-wallets, and willingness to explore digital money as an option
  • 75% of them also feel they will go back to cash once the situation normalises
  • Most of them (90% plus) are optimistic that it will be business as usual in the medium term (3-4


As a company, we expect loan disbursement to slow down in the coming few weeks but expect to normalise in 3-4 months. However, this will force all financial services players to rework their business strategy based on electronic platform. Use of technology and digital money will get a fillip in the medium term and we also expect resultant reduction in cost. All these should be a reality over the next 1-3 years.

Demonetisation will also enhance opportunities to banks and other financial services company. The government of India is also pushing things to move away from cash and encouraging establishments to accept digital money. For example, the national highway authority is working on a unified card system for payment of toll across the country. This is an opportunity for banks to deepen the penetration of card, wallet etc. Also, many of the establishment will be more than willing to shift to electronic platform. All these things will change the dynamics of the financial services market for the better in the next 1-3 years. The cost of transaction and cost of cash management etc. will go down significantly.

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Vistaar Official