#### **Company Overview** Arman Financial Services Limited (BSE: 531179, NSE: ARMANFIN) is an RBI-registered Category A Non-Banking Financial Company (NBFC-ICC), founded in 1992 and headquartered in Ahmedabad, Gujarat. The company is listed on both the BSE (since 1995) and NSE (since 2016). It operates in the rural and semi-urban financial services sector, targeting under-served populations in the informal economy across **11 states**: Gujarat, Madhya Pradesh, Uttar Pradesh, Maharashtra, Uttarakhand, Rajasthan, Haryana, Bihar, Jharkhand, Karnataka, and Telangana. Arman specializes in small-ticket retail loans and maintains a diversified lending portfolio delivered through **fully in-house operations** (sourcing, credit appraisal, and collections), enabling deep local market penetration and strong asset quality control. Its microfinance operations are conducted via its wholly owned subsidiary, **Namra Finance Ltd**, an NBFC-MFI rated MFI-1 (highest rating) by CARE Ratings and A/ACUITE. The company is guided by over 100 years of cumulative lending experience among its core management team and has maintained **consistent profitability with no annual losses in its history**. --- #### **Business Segments & Portfolio Composition** As of **Q2 FY26** (Sep–Nov 2025), Arman’s **total AUM stood at INR 2,130 crore**, distributed as follows: | Segment | AUM (% Share) | AUM (INR Crore) | Avg. Ticket Size (INR) | Key Tenors (Months) | Yield (H1 FY26) | |----------------------------|---------------|------------------|-------------------------|----------------------|-----------------| | **Microfinance (via Namra)** | 65.8% | 1,401 | 48,000 | 18–24 | N/A (est. 22–25%) | | **MSME Loans** | 22.2% | 473 | 74,000 | 24 | **34.68%** | | **Two-Wheeler Loans** | ~3.5% | ~75 | 75,000 | 12–36 | **25.77%** | | **Loan Against Property (LAP)** | **3.5%** | ~75 | 7.5 lakh (Avg) / 4–6 lakh (Pilot Avg) | 36–84 | 26.19% (Q1 FY26) | | Individual Business Loans | ~5% (est.) | ~106 | 3–6 lakh | 24–84 | N/A | > **Note**: The company has a **strategic portfolio transformation vision**—targeting a shift to **~60% Microfinance and ~35% MSME** of total AUM over the medium term, driven by higher ROA, better risk diversification, and improved return profile. --- #### **Key Product Segments** ##### **1. Microfinance (Flagship & Foundation Segment)** - Conducted through subsidiary **Namra Finance Ltd**, focused on **women entrepreneurs** in low-income communities. - Utilizes the **Joint Liability Group (JLG)** model, with groups self-organized by borrowers. - **Rural concentration: ~89.98%**, significantly higher than industry average (~70–75%). - **100% cashless disbursements**, with usage checks to ensure loans are used for income-generating activities (e.g., livestock, dairy, kirana stores). - Conservative growth philosophy with a **high application rejection rate (~80%)** to preserve asset quality. - AUM reduced temporarily in H1FY26 to **stabilize portfolio and improve credit quality**. ##### **2. MSME Loans (Highest ROA Segment)** - Launched in **2017**, now Arman’s **most profitable segment by ROA**. - Serves **individual small rural enterprises** with working capital and business expansion loans. - Operates in **7 states** via **109 branches** (as of Nov 2025). - **Disbursement**: 100% cashless. - **Collections**: High-touch doorstep model, with ~20% now digital (UPI/e-NACH). - **Credit underwriting**: - Dual bureau checks (CIBIL for non-MFI, CRIF for MFI-linked borrowers). - Cash flow analysis, home/business field investigations. - Centralized credit approval. - **Performance (H1 FY26)**: - **Yield**: 34.68% - **GNPA**: 3.86% - **NNPA**: 0.97% - Strategic focus for long-term growth; disbursement momentum remained strong despite deliberate microfinance reduction. ##### **3. Two-Wheeler Loans (Established Rural Segment)** - Provides **secured (hypothecation-based) loans** to self-employed and cash-salaried individuals in the informal sector. - Currently operational **only in Gujarat**, via a network of **over 50 dealerships** (Ahmedabad-Gandhinagar and Tier 3–4 towns). - **Disbursement**: 100% cashless. - **Collections**: e-NACH/digital for urban 2W; **doorstep cash collection in rural areas**. - **Credit Assessment**: CIBIL/CRIF + field investigations (home & business). - **Performance (H1 FY26)**: - **Yield**: 25.77% - **GNPA**: 4.99% - **NNPA**: 2.10% - Growth drivers: rising financing penetration, OEM-dealer relationships, and expansion plans. ##### **4. Loan Against Property (LAP) – New Growth Pilot** - **Pilot launched in Q4 FY24** and now contributes **~3.5% of AUM** (up from 1.2% in Mar 2025). - Secured lending product targeting **self-employed and MSME customers** in Tier 3–4 towns. - **Operational states**: Gujarat, Telangana, and Madhya Pradesh. - **Avg. Loan Size**: INR 7.5 lakhs; **Range**: INR 3 lakh – 20 lakh. - **Tenors**: 36–84 months. - **LTV cap**: 65%, with full property valuation and title checks. - **Digital focus**: 100% cashless disbursement & **e-NACH-based collections**. - **Credit evaluation**: - Dual bureau checks (CIBIL + CRIF) - Cash flow assessment, field investigations - Technical & legal property due diligence - **Performance (Q1 FY26)**: Yield of **26.19%**, **zero GNPA/NNPA**—indicating strong early performance. - Considered a **key future growth driver**, though operational and documentation challenges persist in rural property markets. ##### **5. Individual Business Loans & Rural 2W Expansion** - Part of broader diversification into **individualized, higher-ticket loans**. - **Individual Business Loans** cater to customers graduating from JLG microfinance. - **Rural 2W Loans** are being piloted in Tier 3–4 and smaller towns, with higher yields and ROA. - Both segments reflect a **strategic shift away from group-centric models**. --- #### **Operating Model & Growth Strategy** - **Branch Network**: As of Q2 FY26, Arman operates **509 branches**: - 396: Microfinance - 109: MSME - 4: Two-Wheeler Financing - **Total Customers**: ~**6.4 lakh** active customers. - **Workforce**: Over **5,100 employees**, including **3,900+ loan officers**—underscoring a field-intensive model. - **Technology Integration**: - Fully digitized loan lifecycle with **paperless processing**, **Aadhaar-based e-sign**, **geotagging**, **AI bot calling**, and **face recognition**. - Investment in scalable **SaaS-based LOS/LMS platforms** hosted on AWS. - Digital collection adoption increasing (~25% of all collections now digital). - **Collections**: - Primarily **field-based doorstep collections** for micro and MSME. - e-NACH/digital mandates required for all products **except JLG loans**. - ~20–25% collections now digital across business lines. - **Credit Philosophy**: - **Conservative underwriting**, aiming for sustainable **ROA of 4–5% post-tax**. - Focus on **asset quality over volume**. - High rejection rates (microfinance: ~80%) reflect disciplined credit filters. --- #### **Geographic Expansion & Diversification** - Operates in **11 contiguous states**, with strategic expansion into Karnataka, Telangana, and East India (Bihar, Jharkhand). - Expansion since 2014 has reduced **geographic concentration risk** (previously heavy in Gujarat and UP). - Microfinance presence is used as a **bridge** to launch MSME and LAP products in new geographies. --- #### **Financials & Funding Position (as of H1 FY26)** - **Capital Strength**: - **Standalone CAR**: 38.7% - **Namra Finance CAR**: 57.8% - **Liquidity Buffer**: INR 233 crore - Solid access to diverse funding sources (35+ banking and financial institutions) - **Disbursement Trends**: - **Intentionally reduced microfinance disbursements** to INR 605 crore (H1 FY26) to stabilize portfolio. - **MSME and LAP disbursements** showed strong momentum. - AUM composition shifting toward higher-margin secured and business loans. - **Projections**: - Expect **improved performance in second half of FY26**, including stabilizing microfinance asset quality, improved collections, and lower credit costs. --- #### **Key Strengths** ✅ Conservative, disciplined underwriting ✅ In-house, bottom-up credit and collections model ✅ Deep rural penetration and last-mile delivery capability ✅ High returns from MSME and LAP segments ✅ Strong capital adequacy and diversified funding ✅ Early success in digital transformation and credit diversification #### **Risks & Challenges** ⚠️ High operating costs (especially doorstep collections) ⚠️ Documentation hurdles in rural property markets (for LAP) ⚠️ Transition risks with new individual credit models ⚠️ Macroeconomic sensitivity in rural segments ---