Having faced many difficulties along its way, this finance company is now progressing a prosperous path.
Since its inception in 1996, Progressive Finance Limited has been through several turning points in its 24 years journey. After going through a tumultuous past, the company is now stable and strong with dedicated promoters and management who look forward to upgrading the financial institution as a development bank in the foreseeable future.
In a bid to secure a bright future, the company is working to improve its financial indicators and overall management. Its paid-up capital now stands above Rs 800 million and the total number of customers at about 10,000 which stood at Rs 200 million and 3,000, respectively, till 2016. Likewise, its current non-performing loan (NPL) is below the statutory level of five percent while total deposits have increased to Rs 1.8 billion. Moreover, the company has planned to further strengthen its financial figures by the end of the current fiscal year. “We have aimed to increase both credit and the deposit bases to over Rs 2.5 billion by the end of FY 2019/20 if anything unfavorable does not occurs,” says Bishal Humagain, CEO of Progressive Finance, adding, “We are also making efforts to increase profit to more than Rs 50 million and decrease NPL below 2 percent.”
Besides, expanding network of branches is another area of focus for Progressive Finance; the company has been providing financial services to its clients from 11 branches/extension counters situated in different parts of the country including Dhanusha, Sarlahi, Kathmandu, Lalitpur, Bhaktapur, Kavre and Kaski. In July 2019, Progressive Finance shifted its corporate office to Tinkune, Kathmandu after operating its head and corporate offices at Pako, New Road for 22 consecutive years.
The journey
The foundation of Progressive Finance was laid by 10 promoters from the Newar community. The company, which was operating in a satisfactory manner faced a period of turbulence starting from 2008. It was charged for unfair business practices and the central bank issued PCA (Prompt Corrective Action).
A case related to banking offences was filed against the company during the chairmanship of Sambhu Bahadur KC involving misuse of credit. As the chairman himself was charged and investigated, the company could not increase its capital level when Nepal Rastra Bank (NRB) directed finance companies to raise their paid-up capital to Rs 200 million. Later in 2009, a new board of directors took over the helm of Progressive Finance when the founders exited the company.
In 2011, the company’s NPA (non-performing assets) soared above 50 percent and losses amounted to around Rs 80 million; its paid-up capital during that time was Rs 120 million. So, NRB imposed a prompt corrective action (PCA) on the company. Due to the overvalued collateral, the company could not recover the money even through an auction of the assets. Similarly, it was not able to collect deposits nor issue loans during those trying times.
Turning Point
Due to the lack of any noticeable improvement and the economic impact of the 2015 earthquake, nobody was willing to take on the responsibility of being the company’s chief executive after the end of Jhanak Raj Dhungel’s tenure as CEO in early 2015. In such a situation, Humagain, who was deputy CEO in the company at that time, stepped forward to take up the leadership of the management.
Humagain joined Progressive Finance in 2013/14 as Chief Manager. He was promoted to deputy CEO after some improvement was seen in the recovery of loans due to his efforts.
Learning from past experience, the company took some decisive steps to improve the situation. NPA gradually came down to 48 percent. Within a year of Humagain’s appointment as CEO, the company’s NPL declined by five percent.
In 2013/14, when the institutional reform process started in Progressive Finance, the company succeeded in getting rid of the lawsuit over its property. “As soon as we got rid of the lawsuit, we auctioned the assets. We also got good returns as the value of real estate was increasing significantly back in 2013/14. It helped us to decrease the NPA too,” says Humagain.
He further recalls, “When the group of Shambhu Bahadur KC left the company, NRB gave us a chance to revive by reforming our management and raising the capital level. In 2016, a new group of promoters came in and our paid-up capital increased to Rs 200 million.” The company gradually expanded its business operations, and as a result opened its first branch in Banepa, Kavre in 2016. In the same year, the company significantly recovered the loans, injected required capital and NRB released it from PCA. NRB had already raised the minimum capital requirement of national level finance company to Rs 800 million and gave the companies a period of 2 years to increase their paid-up capital. The new investor group led by Chairman Kishore Kumar Maharjan managed to meet the new capital requirement within the stipulated time provided by the central Bank.
Products
Progressive Finance has been offering a range of products in deposit and credit to its clients. It has 12 personal savings schemes, namely Special Saving Account, Children Saving Account, Progressive Super Bachat Account, Progressive Gold Saving Account, Progressive Unnati Saving Account, Shareholder Saving Account, Ugratara Special Saving Account, Staff Growing Plus Saving Account, Subharambha Saving Account, Prassana Bachat Khata, Samajik Surakxhya Bishes Bachat and Jestha Nagarik/Krishak/Ekal Mahila Purush Bachat Khata (JNKEMP Saving Account). Likewise, the company has Progressive Super Corporate Saving Account, Call Account Ordinary Corporate Saving Account for corporate clients. Meanwhile, the company has 17 products in lending including Unified Agriculture Loan, Progressive Subsidy Loan, Trading Loan, Home Loan, Hire Purchase Loan, Wholesale loan, Service Business Loan, Industrial loan, Education Loan, Foreign Employment Loan, Deprived Sector Loan, Share Loan, Real Estate Loan, among others.
The company is providing interest rates of around nine percent in average in savings and up to 11.5 percent in fixed deposits. Prasanna Bachat Khata is popular among customers of Progressive Finance as they get nine percent in interest for depositing money under the scheme. “We disburse interest payments every month while commercial banks provide it in a quarterly basis. Also, our interest rate on fixed deposit is higher compared to the 9.25 percent interest rate of commercial banks,” says Humagain. According to him, Progressive Finance is on its way to digitalise its services; the company will introduce home banking and mobile banking in the near future.
A Focus on Human Resource
Progressive Finance only had a staff of 12 in 2016; now the company has a workforce of 90 professionals. The company has been utilizing standard recruitment process to hire skilled people and fresh graduates. Similarly, it organises training programmes to enhance staff skill levels as per the provision of NRB. Humagain says, “We duly adhere to the essence of the Banking and Financial Institutions Act (BAFIA) to avoid influence of shareholders or board of directors over the company’s management team. The ultimate people who work in any BFI are the staff. So, motivating employees is one of our major focuses.”
CSR
Humagain believes that BFIs always do CSR indirectly as the services they provide empower people financially. He says that the role of institutions like Progressive Finance is pivotal in entrepreneurship development in the country, encouraging people to maximize their wealth. Like other financial institutions, Progresive Finance has been spending some of its income on doing social good. It recently provided support to Jyapu Samaj; the company in the last two years has provided t-shirts to volunteers of Rato Machhendranath Jatra. “We have contributed more than Rs 3 million so far which is 10 percent of our profit. We are also one of the sponsors of the Women Entrepreneurship Award,” shares Humagain.
“Our plan is to upgrade the company to a development bank.”
What are the key areas of focus for business growth for Progressive Finance at present? What difficulties exist for your company in this respect and how is it facing them?
Our main focus is to increase investment in productive sectors and enhance customer-oriented services. However, it is quite complicated to invest in the productive sectors given the country’s current macroeconomic situation; there are concerns weather or not investments will be recovered. We are collecting social funds and designing good products in deposits as well as loans.
At a time when financial institutions are competing for branch network expansion, how is Progressive Finance moving ahead in expanding its presence?
We are looking to expand our presence in areas that are developing rather than developed urban areas. BFIs should be present in such places where financial services are not available. Currently, we have 11 branches/extension counters in different parts of the country.
The financial report of the second quarter of the current fiscal year suggests that Progressive Finance is facing difficulties with a decline in profit and growing non-performing loans (NPL). What will the company do to reverse that in the upcoming quarters?
We faced several difficulties in the past. Later, we became stable and started exploring different sectors and we carried on investing aggressively and planning accordingly. Similarly, our branch network expansion was also an aggressive move. We faced a loss of around Rs 2 million from the new branches. It takes at least a year for the profit to arrive from such investment. But we will continue to operate the branches and reach break-even point. We are concentrating on minimising NPL and maximising profit. We also invest in other areas such as the stock market. The security coverage is more than enough than loans we have provided. We have made efforts to comply with the rules, regulations and directives of NRB. We are quite hopeful to have good financial figures for FY2019/20.
Who are the major client groups of Progressive Finance? How is the company contributing to the growth of its clients?
Most of our clients are SMEs, those who borrow money for personal reasons and hire purchase customers. So, our clients are those who need regular financing to fulfill demands in their daily lives. It can become difficult for many people to access commercial banks and development banks as such financial institutions seek customers who have exposure to banking and are well resourced. A finance company like ours bears risk by providing loans to people who are not well resourced but have plans or ideas to do something. We provide banking experience to inexperienced customers enabling them to avail the services of large banks in the future. We are working in low margin of interest spread rate because we need to grow our business.
The merger pressure has grown for financial institutions over the last couple of months with Nepal Rastra Bank pressurizing BFIs to go into it. What is the position of your company in this regard? What type of merger is preferable for your company?
Currently, the NRB directive is only for commercial banks. Commercial banks are merging into finance companies and development banks, too, by offering them good swap ratio proportions. And the institutions are also merging thinking that their net worth will increase. So, the number of finance companies has declined by 75 percent. The number of development banks will also reduce by the same rate. But the number of commercial banks is decreasing in negligible amount. In fact, the aim of the mergers has been to reduce the number of commercial banks by merging them together. We are not looking to go into a merger at the moment. Our plan is to upgrade the company to a development bank.
