Slow but Steady Goodwill
When Goodwill Finance first started operations 13 years ago, it did not adopt the ‘big fish’ approach. The company started with small deposits allowing people to open accounts with as little as Rs. 10,000 and this strategy has served the company very well, says Saroj Kaji Tuladhar, CEO of the company.
The idea to set up a finance company came about when Tuladhar and his friends wanted to start something on their own instead of seeking jobs after they graduated. So, they motivated a few others, including university teachers and businessmen, to join them in the venture. Thus the 13 promoters got together and put in Rs. 7.5 million as equity for the company. The name “Goodwill” was chosen because they initially wanted an alliance with an Indian company with the same name but this did not materialise.
Now Goodwill’s capital has increased to Rs. 50 million and next year it will be doubled to Rs. 100 million by issuing rights shares. The idea to increase the capital came up with the realisation that the company had reached a stage where it had to increase its business volume to increase its profitability. The company currently employs 19 people and operates from a single office in Dillibazar.
In the beginning the company sought deposits from near and dear ones, according to Tuladhar. “While agreeing to give deposits, they told us to inform them first if the company started going down,” remembers Tuladhar, “Now the same customers are maintaining deposits of tens of millions rupees with us.”
Currently Goodwill has total deposits of about Rs. 400 million. And according to Tuladhar, the remarkable fact is that the average deposit size is only about Rs. 245,000 per account. He says the loan amounts are small as well. Both the deposits and loans start from Rs. 10,000. While the cost of doing business in such small amounts is high, Tuladhar claims that this approach will make it easier for the company to face the situation when all the Basel accords are implemented and foreign banks are allowed to open branches in Nepal.
But Tuladhar does concede that in the future, Goodwill will have to take a slightly different approach by serving the big fish as well. So it is going to make its deposit portfolio slightly different by getting 50 per cent of its deposits from big depositors while the other 50 will still be coming from small ones. “One advantage of the small loans is that it lets us know about how the living standard is changing. For example, if the number of loans for flat or LCD screens is increasing, it means the living standard is growing and we can modify our business strategy accordingly,” he says.
While some point out that Goodwill is not growing as fast as other finance companies which are fast turning themselves into development banks, Goodwill’s leadership is not daunted. For example, Tuladhar says that the growth has to be sustainable. According to him, although the company is looking to grow into a development bank in the future, Tuladhar asserts that this should only be done when the bank develops its own internal capabilities. He says that many finance companies at the moment are just increasing their capital to acquire licences and turn into development banks without proper preparations. “To become a development bank, any finance company needs to enhance the human resource strength by doubling or tripling the number of professionals and experts on its payroll. The infrastructure also has to be there: we don’t want to get a licence and then look for a building,” states Tuladhar.
It is not that Goodwill has not tried to grow by merger or acquisition. But Tuladhar says, such efforts have failed and in his opinion it is because there is a lack of professionalism even at the board level of the finance companies. “People don’t want to leave their positions as chairman,” says he. “Even though we only approached companies that had managers of the younger generation, it was still very difficult.” Still Tuladhar is sure that because of the intense competition between financial institutions, mergers and acquisitions are inevitable in the near future.
Talking about Goodwill’s standard of service, Tuladhar says that Goodwill’s strength lies in being able to retain its customers. He claims that the company puts a lot of emphasis on customer service and once a client comes from someone’s reference, he becomes hooked to the company. Tuladhar says the secret behind this is to make customers feel important through a personal touch in their service that is embedded in the company’s regular process. “People who bought motorcycles through us are buying cars now and people who bought TVs are now buying houses,” claims Tuladhar.
Goodwill is involved in all the sectors allowed for finance companies, but with the important exception that it has deliberately refrained from margin lending. He feels that margin lending was not regulated properly and this has led to the astronomical rise in share prices. “This is dangerous for the lender and this does not help to increase the real wealth in the country,” he says.
Also commenting on the Nepal Rastra Bank’s (NRB’s) policy of finance companies needing Rs. 5 million to open branches outside Kathmandu , Tuladhar says this is highly impractical. “We wanted to open a branch in Baglung but this provision made it impossible. How could we raise that much money?”
Tuladhar also opposes NRB’s policy of increasing the capital bases of financial institutions to limit the number of players in the market. He is of the view that there are 72 financial institutions in the market today and customers are getting better and varied services. He also says that if the number of banks is to be limited, then the promoters’ funds should be made very transparent. Further, he says that Nepali financial institutions have not really helped the economy grow because all loans are covered by collateral and entrepreneurs are discouraged. “Why is there the need to differentiate loans when they are all backed up? Why don’t we see any door-to-door loan marketing?” he asks.
Tuladhar also says that NRB needs to further clarify its definition of wholesale banking. “For a small company like Goodwill, a Rs. 10 million loan may be wholesale but for others Rs. 1 billion might be so. This is the same case with deposits. For Nepali income levels, even Rs. 5 lakh is big,” says Tuladhar, “These loopholes have to be sorted out so that local financial institutions can survive after 2010.”
The future goals of Goodwill are to become a development bank by increasing their capacity and to reduce its costs.
WorldLink Linking Nepal the IT Way
Started as a small company from a single room in 1995, WorldLink Communications, has now become the largest Internet Service Provider (ISP) of Nepal . Dileep Agrawal, the main promoter and chairman cum managing director of the company says, “The Nepal Telecommunication Authority data have proved that our subscriber base is the largest among the ISPs of the country.”
Recounting its beginning, Agrawal says the seeds of the idea to start this business were sown by his brother but it had to be delayed as his brother had to devote his time to his job in the US . But Agrawal returned to Nepal after completing his undergraduate degree and started WorldLink from his house. 40 percent of the shares were owned by Agrawal, his brother also put in 15 percent from the US and the rest of the money came from his cousins who are working partners in the business.
“Initially the main focus of WorldLink was to provide service quality to its customers because we had no idea about business or accounting,” says Agrawal. According to him, WorldLink employees would go to their customers’ houses to install an email system. This was not the case with WorldLink’s only competitor, Mercantile. “With our additional service, customers, mostly expatriates, were impressed and WorldLink soon built up a good reputation through word of mouth publicity,” he recalls.
The major turning point for the company came at the CAN Infotech of January 1996 when 300 people subscribed to WorldLink’s services. This was significant because WorldLink’s clientele till then numbered only 500. But as its clients increased, Agrawal says new subscribers wanted WorldLink to provide full Internet services like its main competitor Mercantile. WorldLink was hesitant in doing this because its costs would rise dramatically if it were to invest in Internet services. But it had no choice in this matter because the future of the company could only be with Internet and Agrawal knew this very well.
Giving an idea on how high the costs were, Agrawal informs that a direct line from the US called “a dedicated line” was needed for Internet services. “At that time, a minute’s call to the US cost Rs. 150, and for the Internet, the line would have to be open 24 hours. WorldLink had to pay the party in America about $2,500 to 3,000 every month while we had to also pay Rs. 450,000 to NTC simultaneously,” he says. However the outside party agreed on deferred payment and this made it easy for the company.
Another turning point for WorldLink came when Nepal Telecommunications Authority (NTA) was established in 1997. After its establishment, ISPs could own their own VSATs discs for direct communication with outside parties whereas till then they had to go through NTC. So although the installation cost of the VSAT was $30,000, the bandwidth price was slashed drastically after it was set up, informs Agrawal.
So, through the VSAT system WorldLink could buy bandwidth of one mega byte per second (mbps) while through NTC, it was buying 64 kilo bytes per second (kbps) for the same amount. “In a way, we were paying NTC 16 times more for a much smaller bandwidth,” says Agrawal. When costs were reduced, the market really grew because Internet became cheaper and more people could afford it. Meanwhile, many new players also entered the market. Now there are about 45 ISPs licenced in the country.
“And our company’s total bandwidth has gone up to 60 mbps,” reveals Agrawal.
Nepal currently has around 50,000 Internet subscribers and there are in average five users per account, informs Agrawal. “Out of the 50,000 subscribers, WorldLink has 15,000 subscribers, thus making us the largest ISP in Nepal ,” boasts Agrawal. Another feather on the cap of World Link is that it is the only ISP with a capacity of 60 mbps. “Other ISPs are not going for so much capacity perhaps because it costs about $1,800 to 1,900 per mbps,” he says. According to him, this is the main cost of the ISP business.
According to him, WorldLink provides many different customised plans to its customers. They can choose between unlimited Internet access or access during fixed hours. Agrawal says that the profit margin in unlimited subscriptions is less because people who take this scheme tend to download heavily. But unlimited subscriptions bring in about 75 per cent of WorldLink’s revenue as this seems to be more popular with Nepali customers.
Apart from providing Internet service, WorldLink can also set up networks in companies, for example, by linking various branches of a bank. On special demand, it also imports higher end hardware for some customers although this is rare.
Software
Meanwhile, WorldLink Communications has spun off a subsidiary company called WorldLink Technologies to develop software. WorldLink Communications owns 25 per cent of that company while the developers own the rest as sweatequity. The software company recently developed a software called Endeavour HR solutions with a grant from the Asian Development Bank. This software is used for employee management and the state government of Orissa , India has already bought this software for $40,000 while some other parties are also examining it. WorldLink Technologies has also developed a software for inventory management for Nepal Electricity Authority which has 80 branches. Agrawal says that WorldLink has not hired foreign consultants till now and all the software is developed here.
As for WorldLink Communications, it currently employs 150 people out of which 30 are technical persons while 25 to 30 are for marketing and the rest are for ground support. Over 50 per cent of the employees are women and Agrawal says the punctuality rate is higher among women but they are hired only for office work as it is difficult to employ them at later hours or for fieldwork. The company has to spend heavily in training his employees as there is a tendency among trained Nepalis to go abroad in search of better opportunities.
WorldLink has eight branch offices across the country. Agrawal says many branches are needed because Nepali customers have the habit of delaying their payments. He discloses that every year, 8 to 9 per cent of revenue turns out to be unrealisable. Therefore, the company has 10 people specially assigned with the task of reminding the clients to pay their dues.
But having eight branches serves other purposes too. WorldLink employees can easily reach the majority of their 15,000 customers through them as each office looks after a specific locality. It makes it easier for the service staff as they can reach customers even when roads are blocked. It is also easier for customers to make their payments through the branches. “It is quite costly for us to operate these branches but it has many benefits,” says Agrawal.
Talking about the future, he says, “Our responsibility is to take the Internet to all Nepalis because this is where our long term prosperity lies. So, WorldLink in planning to go outside Kathmandu even if we operate only at break even. In line with this view, WorldLink is providing services in areas like Itahari where cyber cafes are its only customers.”
WorldLink is also part of the ISP association of Nepal which aims to increase the number of Internet users in Nepal to a million by 2010. But for this goal to be achieved Agrawal says that the government should have a more open view about ISPs and that the state owned NTC should shed its monopolistic tendencies. Clearly frustrated with NTC’s policies, he says that they are very unfair on the private sector. Citing an example, he points out that ISPs have to take licences for each service they provide and each licenced business should be treated as a single business. For example, WorldLink has a licence for an ISP and another for VSAT service. For these businesses, different accounts have to be kept and there should be no cross subsidy between them. However, these rules do not apply to the NTC. “If the NTC’s ISP needs a link between Biratnagar and Kathmandu , it is done for free. How can we then compete in Biratnagar? All our ventures outside Kathmandu are making losses,” fumes Agrawal.
“Another example is that NTC’s customers do not have to pay STD charges for dialup from outside Kathmandu while ours have to cough up this charge,” he says and informs that private ISPs have complained officially about these matters but there has been no reply from NTC. “The people of NTC are afraid that if they try to make changes, they will lose their jobs. In this process the consumer is losing out because they have very little choice.”
Agrawal also says that the Internet business is about value added services. That is why ISPs want to add services like telephone services through the Internet but this is again being thwarted by the NTC. “It costs three cents (about Rs 2. 20) to call America ,” informs Agrawal. “But the NTC charges Rs. 30 for this service. So naturally, it is being done illegally and even the NTC people are involved in this. If they wanted to they could easily check it but they are not doing that. So if the government wants more taxes, it should legalise Voice Over Internet Protocol (VOIP). Our revenues will increase and everybody benefits” he argues.
Agrawal says that if the government is really sincere about providing Internet services across the country, it should utilise money from the Grameen Door Sanchar Bikas Kosh to provide subsidies to the ISPs. He explains that ISPs currently have to pay 6 per cent of their revenue as taxes: 4 per cent as telecom tax and 2 per cent is set aside for the Kosh, in which a lot of money has accumulated. “It is time to mobilise this money,” he says. “We will go to the villages if the government utilises this money to subsidise our operations in rural areas. It should also not charge us taxes for going to the villages for some time,” reasons Agrawal.
Another of his demand is that as NTC’s infrastructure is paid for by the people’s money, so the private ISP’s should also get access to it. “For example, if the NTC builds a line from Kathmandu to Birgunj, we should also be allowed to use that. If we have to set up new lines, the cost has to be borne by the consumer and it is an unnecessary double investment. If the NTC lets us use its infrastructure, it will only get more revenue,” says Agrawal.
And according to him, if these suggested changes are adopted, Nepal might easily have one million Internet users by 2010.
