A New Business Model In 1991, HDFC faced a major challenge. With the country's economy in disarray, raising international wholesale funds suddenly became much more difficult. At the same time, as part of the country's economic liberalization, the RBI loosened interest rate regulations. In six to eight months, interest rates skyrocketed from 14.5%-15% to 17%-18%. These changes came as a shock after the stable rates of the 1980s. Faced with the dual challenge of raising wholesale funds and lending at affordable rates, HDFC began to rethink its business model. Rather than reduce its lending activities, HDFC turned to deposit-taking as a new source of funding. As a non-bank finance company, HDFC was legally permitted to accept 1- to 7-year term deposits. With HDFC's credibility well established, managers were optimistic that people would trust the company with their deposits. However, they knew HDFC could not compete simply by paying depositors higher interest rates since they also had to maintain reasonable rates on housing loans while allowing for a 2% profit margin. To make up for rate disadvantages vis--vis some of its rivals, HDFC decided to provide a superior level of customer service and to focus on innovation. Among other things, HDFC gave its depositors a deposit certificate within a matter of days-and subsequently within a matter of minutes-rather than the customary 3-6 weeks required by the banks. HDFC also introduced loans against deposit in India and pioneered a monthly income plan that paid depositors their interest by postdated monthly checks or, later, by electronic fund transfers. HDFC launched its deposit-taking business in August 1991 using a network of deposit mobilization agents, independent sales people who brokered insurance, term deposits, and other financial products for several companies. Many companies that used agents required them to wait a month or more to collect their commissions. An agent might have to call repeatedly to get paid. HDFC offered across-the-counter commissions, trusting that agents' checks would not bounce. Within two years, HDFC registered some 15,000-20,000 non-exclusive agents. By 1995-1996, HDFC had become India's largest deposit-taking institution outside the banking sector. It maintained this position, and in 2000 had nearly 50,000 agents who together generated over 95% of HDFC's deposits-from individuals and institutions. About a quarter of the agents, the "key partners," generated deposits of more than Rs. 100,000 a year.