Al Omaniya Financial Services has emerged as the No. 1 company amongst NBFCs in Oman. Aftab Patel, its CEO gives a ring side view of the company’s business model, mission statement and success principles. Mayank Singh reports .
Al Omaniya Financial Services (AOFS) has been ranked the No. 1 company amongst NBFCs in Oman by the OER-GBCM Survey. What has enabled you to achieve this position?
All these rankings and awards are indirectly related or incidental to our performance. For me the priority is to create a business model that generates value for all my stakeholders. My stakeholders include not just my shareholders but also regulators, people, clients, customers, staff, my board and everybody who engages with the company. Secondly, I look at having a sustainable business model and these are the two hallmarks of our philosophy. Creating a sustainable value proposition for everyone is not an easy task as my stakeholders do not necessarily have complementary objectives, many of them may actually have conflicting goals. For example, my shareholders may want the highest returns, whereas my customers want the lowest possible price. These two are contradictory, same is the case with my employees and my colleagues as they may want the highest rewards, while the shareholders probably would want to give the lowest. The challenge is to synthesise, integrate and match these competing aims without conflict and so far AOFS has successfully achieved these objectives.
When I talk about creating value for my stakeholders it includes innovation in various areas like – products, delivery, value in financial structuring, creating employee skill sets to manage a sophisticated business and delivery mechanism, process and systems which can aid this delivery and to optimise our costs at the same time. On the structural side it translates into how effectively we manage our resources which is our capital so that we have a strong and effective capital structure that maximises my shareholders earnings per share. When you combine all these in a proper business model and create a logical sequence, you get a reasonably sound business model and that is what we have successfully created. We also look at sustainability, because business is not a one-time game, it needs to go on beyond the lifetime of the people who run it presently. When we look at sustainability, we look at whether this is good for my client, my stakeholders and not just for me. We also look at the environment and see whether we are unnecessarily adding to the carbon footprint, and this is a consideration that is always at the back of our minds.
You are saying that running a business is a choice between competing objectives. As a CEO you have to make this choice almost every day. How easy or difficult is this task?
The whole art and science of doing business is that the apparent contradictions that exist are only apparent. If you analyse these contradictions and objectives, you start to connect between them, look deeper and you see the harmony in these objectives, because each of these conflicting stakeholders start to understand that by cooperating with each other, they are meeting the greater goal, which enables everyone to meet their own ends. This is how we educate, communicate and harmonise. We aim for a reasonably optimum return and our employees also start seeing the power of working together. You build and develop that kind of an organisation. When we did our process engineering, we ensured that it was a very flat organisation, there were open lines of communication, and people understood that interdependency. To make this work we created a reward policy which emphasised cooperation, integration and working together, because the way the rewards are structured ensures that if someone is not performing a critical function well, then that impacts others. So suddenly department A had a vested interest in seeing that department C, D and E also functions well and every department did everything within its power to see that the system works as a whole.
Similarly we created a capital structure for the company which ensured that shareholders could be rewarded with the least possible impact on overall revenue or profitability of the company. This has been achieved by having a dynamic capital structure. If you see our capital structure, you will notice that it is completely different from the capital structure of all the other NBFCs. For example, I have approximately RO57mn in net worth, but my capital is only RO21-22mn, which is less than half of the networth. This ensures that we can create a much higher yield and higher earnings per share on the given equity which allows us to pay substantially good dividends. On the other hand, if my capital is RO25mn and my networth is also RO25mn then it is difficult for me to pay that kind of a return, unless and until I get into high risk areas, take on risky businesses or cut down on the rewards to stakeholders. Thus we have an organisational structure that balances competing objectives at the same time compensating each of the stakeholders.
AOFS has done very well on asset quality, profitability, sustainability and efficiency. Can you talk us about your asset quality and how you have struck a balance between provisions and business?
We define our business by asset quality. I do not have a quantitative target saying we should do so much business or that we need to grow by 10, 20 or 30 per cent. That’s not my objective. My objective is to maximise business, which is a general objective, but the business is defined clearly and unambiguously. When I say this is the kind of business that I want, I define it as a high quality business, where your defaults would be very low and as a consequence the quality of your book would be very high. The question mark is how do we go and get this business. It is easy to say this is what I want, the question is – have I created the structure, physical infrastructure, non physical infrastructure like skills, training, quality of people, attitudes, delivery systems, processes, computerisation to achieve this goal? If we have done these then things falls in line.
AOFS was structured to meet these broad objectives. When we launched this company, we very clearly understood that though initially we were financing individual cars, we were actually dealing with large vendors as the business was routed through these vendors. Though it was a retail business we ensured that our IT system catered not only to a consumer centric B2C model, but also ensured that we had a B2B platform. Many companies missed out on this because they thought that since we are financing a car, why should we go in for a B2B platform. But for us it was very important because it was the dealers who referred the business to us and you had to service dealers in terms of documentation, purchase orders, payments, MIS etc. If we did not have a capacity to service the dealer then it was going to be difficult for us to get business from them. By creating that unique value proposition for our vendors we ensured that we were the first choice of the vendors to do business. This meant that most of the vendors/dealers would refer the business to us.
As the first right of refusal rested with us our margins were better. If we refused a business it went to another leasing company with lower margins, who were then forced to take on a business of an inferior quality. The company which gets it third was worse off. As a result, you see NPL ratios ranging from 0.8 per cent to 20 per cent in our industry. Thus by creating value for customers and understanding who our customers were, we ensured that they kept coming back to us. If we did not attract customers back we would not have the kind of growth that we have had. Apart from getting new customers we have been able to retain our existing customers and as a result we have been able to grow by 32 per cent against an industry average of 10-20 per cent. We provide value and so our NPAs are low.