Personal Finance

In The Hot Seat With Forbes Advisor India: Nirmal Jain

Nirmal Jain is the founder and Chairman of the IIFL Group, an entrepreneurial startup that began in 1995 and has expanded into a full range of diversified financial services in India. 

He started his career in 1989 with Hindustan Lever Limited before launching his own equity research company.

IIFL today has a market capitalization of over INR 21,000 crore and is backed by global investors such as Fairfax Group, private equity company General Atlantic and UK government’s private equity fund, the CDC Group. 

The group’s three main business segments include IIFL Home Finance, IIFL Wealth and IIFL Securities that focus on mutual fund distribution, institutional equities, consumer finance, wealth management and life insurance. The company has an international presence via its regulated subsidiaries in eight global financial centers.

In an interview with Forbes Advisor India, Jain spoke about how the Indian financial services market has evolved in the last 25 years and why he thinks India is a land of equal opportunities and a growing market.

How has the financial services industry transformed in the last 25 years?

Financial services in the last 25 years have transformed more than even what an optimist could have imagined. The building blocks of these have been the capital markets, the banking sector and the nonbanking financial companies (NBFCs).

Despite a roller coaster ride for the markets, the global financial crisis, the Asian crisis, the 9/11 catastrophe and India’s internal problems, the sector has been growing very, very well, and I think the future is even more optimistic. 

Now what’s going to change and transform the sector in the next decade or so is digital technology. The new building blocks are very different. Now we have the NPCI, Aadhaar and UPI, and we’re likely to introduce features like the consent layer and document layer, and all those things will transform the industry in an incredible way.

Even the financial inclusion plan of the government will get people into banking easily. It may take years, but the trend is set, and things will start to pick up. 

With so many startups working on technology, the credit delivery cost and the operating cost have all come down, and with payment services like Google Pay and Amazon Pay, the transaction costs will become zero. The industry’s transformation is still underway. What we’ve seen in the last 25 years is incredible, but the next 25 years will be more revolutionary.

Is digital technology overestimated in the financial services sector?

Everything needs to be digitized, there is no doubt about that. 

There are two things to note: one is digitizing based on experience or based on certain models. I would say experience gives you the first set of valid hypotheses. But your hypothesis can be completely haywire if it is not coming from experience.

Secondly, digitize but you can’t take away the human or physical presence completely. At least not in the foreseeable future to my mind. So there is some bit of human touch required. It has reduced to a very low level, and we will require much lower as we digitize but a startup that claims it is offering everything completely digitally, I’ll be skeptical about it. 

What has been your motivation to operate in the financial services industry for the last 25 years?

I think it would be wrong to say I had a vision to create this. But the fact of the matter is, I wanted to remain focused on finances because of my core competency. I’m a qualified chartered accountant, cost accountant with a lot of interest in research and capital markets. 

As a business, we never got into real estate or cement, or whatever; finance remained the core. Other than that, we took one day at a time and kept moving. Nobody could have imagined what would happen with 9/11, technology and the internet. You can’t plan your business in that matter, because there is no certainty on the way things evolve—regulatory, technology-related and consumer behaviour. 

The India of today is very different from what it was 25 years ago, and that is very exciting. 

Are new-age companies posing significant competition for established financial services companies?

They (new-age companies) are posing competition, yes. Significant, not at this point in time, but it will become significant over a period of time as they grow with capital and they grow with experience. And there’s a survivorship bias, so some will survive, some will become stronger. 

Today, they may not be posing a significant competition. But tomorrow they will pose. 

So if somebody ignores the competition that is being posed by these new-age startups and fintech players, they will do so at their own peril. I think one has to either have an alliance, learn and do something innovative, but when you say innovation in finance, innovation is not just creating something new. Is your model validated by actual credit performance over cycles is an important question that needs to be addressed. 

What are your hopes with the Indian financial services industry?

Regulators have played a very important role, both SEBI and RBI. I think Aadhaar has been a game-changer, and when we build services over Aadhaar, we can take a quantum leap.

If the state governments and central government can work radically on tax reforms (stamp duty among others) and make the market very attractive for domestic savers and investors as well as foreign savers.

When we say Make in India, India’s manufacturing will happen much later when the economy becomes bigger and stronger and is drawing a lot of capital. But in financial services, India does not have any disadvantage of electricity or, the local laws or land availability or litigations. So the government can focus on financial services and make the growth even faster. 

What has empowered you to survive a long tenure in a tough ecosystem?

All said and done, however much we criticize our government, bureaucracy or the media, this is land of equal opportunities. 

A first-generation entrepreneur such as I with no capital, just 5-10 lakh rupees of savings, can build a reasonably large size business and many others who created a lot more wealth and bigger business models. 

I think that the country allows entrepreneurs or anyone else to thrive. A big example is Narendra Modi from a tea vendor becoming the Prime Minister. So, this is a land of equal opportunities.

Democracy works very well here. People can work fearlessly. Of course, you have to deal with the system, the bureaucracy. Many times you get frustrated with things moving slowly on the regulatory front or due to local reasons, but still things move. So if you’re focused and work hard, anybody can make it big here.

What would you like to say to budding entrepreneurs?

My message to budding entrepreneurs is that you are in a great land of equal opportunities, a free world and also in a growing market. 

There are problems in India but the opportunities are much bigger than the problems. Maybe people are going out of the country, but they’re missing out on the opportunities in this country. They don’t realize the opportunities in India are much much bigger than anywhere else. The environment is a lot more free. 

For anyone, democracy and freedom of speech are the most important things, because if you and your family can live freely, then your mind can function and you can do hard work. Also, in India we have the capitalist system where if you work hard and you create wealth, then you have the right to retain that wealth and pass it on to the next generation or do philanthropy or whatever you feel like, that becomes a very big motivator. 

India is also a free country with a free and functional judiciary, which has allowed many foreign companies to have a large number of cases in their favor. That is what we should be proud of. 

The country will keep growing and its demographics will keep improving till 2050 at least. Even the millennials will see their entire working life in a good environment. So you won’t get that combination anywhere in the world. 

One more thing is that India is digitally moving very quickly. In terms of regulatory reforms as well, so one should not ignore that this puts India in an absolutely sweet spot.

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