Getty ImagesAyeFinance is a Capital G (Google parent Alphabet’s investment arm)-backed digital lender that claims to distinguish itself through utilising technology in mitigating the challenges faced by MSMEs in securing loans. Till date, the fintech lender has disbursed over Rs 1,000 crore worth of loans to over 1 lakh MSMEs in India. Talking to ET, its cofounder & MD, Sanjay Sharma talks about how the fintech lender has been able to significantly bring down the cost of delivering and controlling credit facilities when reaching out to micro entrepreneurs. Edited excerpts:
EconomicTimes (ET): What are those unique differentiators of Aye Finance that sets it apart in the crowded space of digital lending?
Sanjay Sharma (SS): What sets Aye apart from other players in the mix is our ‘assisted fintech- approach’ we use to offer credit to MSMEs - a historically excluded segment. Micro SMEs typically have a scanty digital and financial footprint as compared to their larger market counterparts, making their credit assessment and offering an economical line of credit, a big challenge. We use a proprietary, cluster-based credit assessment methodology which allows robust credit selection even in the absence of traditional business records and prior credit histories.
Additionally, since an Indian micro entrepreneur is not comfortable transacting on the internet, we have chosen to set up low-cost branch networks to deliver a high touch origination experience. To ensure we maintain economies of scale of our small ticket size loans, we have used cloud-based business process engine and variety of data models, and optimally automated our underwriting and collections processes. This Indian-ised approach has provided us among the lowest unit cost of loan origination for business lending in India, and a low rate of delinquencies. Our turning profitable within four years of operations is a validation of the success of this approach.
ET: The NBFC sector is said to be currently going through tough times. Amid such a phase, how is Aye Finance capitalising on the emerging demands of its customers?
SS: We have attracted a significant number of investors since we started in 2014 and we today have many discerning PE (private equity) investors with equity in our company. We were, in fact, one of the few NBFCs that did not feel the impact of the IL&FS debacle and continued to receive adequate funds to meet our disbursal targets. Last financial year, we raised Rs 380 crore in Series C & D equity making it a landmark year for Aye.
Since inception we have raised over Rs 850 crore in debt with debt lines from the 3 leading banks of India – SBI, ICICI and HDFC, as well as leading global impact investors – Blue Orchard, Symbiotics, ResponsAbility Investments, Triple Jump and others. The flow of funds from our partners, debt as well as equity, has kept pace with our accelerated growth, and I do not see that changing in the future.
ET: Unlike a traditional one size fits all model, offering an industry-specific credit delivery framework is a key requirement for success in the digital lending domain today. Tell us how Aye Finance achieves this goal?
SS: We follow a structured industry-cluster-enterprise approach and use a cluster based method that uses the insights of each industry cluster for robust risk selection. This is further honed by analysing the data gathered by servicing more than 1,25,000 customer loans across 70 industry clusters. In the coming year with the opening of 60 additional branches, the number of clusters we serve along with the number of microenterprises funded will go up significantly.
ET: The role of credit rating agencies is critical in lending to MSMEs. Would you like to highlight any gaps in their approach?
SS: The credit rating agencies have made some positive moves getting better coverage to the small enterprises. There are significant moves to build SMEs profile through data sets that go beyond the traditional credit and financial information. Yet, for most of the micro SMEs that we find across India, there is little support from credit agencies. I believe that they are moving in the direction of improving coverage to micro SMEs and as the gap is huge (over six crore enterprises), it will take some more years to really make a visible difference to the existing situation.
ET: Tell us about your short to long term plans.
SS: We reached the Rs 1000 crore AUM (Assets under management) recently. Our 5-year-old company is bursting with plans and energy to scale much larger milestones. This year we expand by opening 60 new branches and having a footprint in 22 Indian States. In the next three years, we hope to extend our inclusive credit product to over 5 lakh micro SMEs.
ET: How do you see the government’s recent initiatives on financial inclusion? In term of policymakers’ approach, any missing area or policy gaps you would like to highlight? How your are playing an enabler?
SS: The Government has realised the need of the sector and has started multiple schemes to encourage credit solutions for these bottom of pyramid businesses. The impact might not be as noticeable as the credit deficit facing the 68 million micro enterprises is a humongous Rs 16 trillion.
A few considerations in the following direction can make access to credit for microenterprises more hassle-free than it currently is. These include:
Simplification of the MSME lending process
EconomicTimes (ET): What are those unique differentiators of Aye Finance that sets it apart in the crowded space of digital lending?
Sanjay Sharma (SS): What sets Aye apart from other players in the mix is our ‘assisted fintech- approach’ we use to offer credit to MSMEs - a historically excluded segment. Micro SMEs typically have a scanty digital and financial footprint as compared to their larger market counterparts, making their credit assessment and offering an economical line of credit, a big challenge. We use a proprietary, cluster-based credit assessment methodology which allows robust credit selection even in the absence of traditional business records and prior credit histories.
Additionally, since an Indian micro entrepreneur is not comfortable transacting on the internet, we have chosen to set up low-cost branch networks to deliver a high touch origination experience. To ensure we maintain economies of scale of our small ticket size loans, we have used cloud-based business process engine and variety of data models, and optimally automated our underwriting and collections processes. This Indian-ised approach has provided us among the lowest unit cost of loan origination for business lending in India, and a low rate of delinquencies. Our turning profitable within four years of operations is a validation of the success of this approach.
ET: The NBFC sector is said to be currently going through tough times. Amid such a phase, how is Aye Finance capitalising on the emerging demands of its customers?
SS: We have attracted a significant number of investors since we started in 2014 and we today have many discerning PE (private equity) investors with equity in our company. We were, in fact, one of the few NBFCs that did not feel the impact of the IL&FS debacle and continued to receive adequate funds to meet our disbursal targets. Last financial year, we raised Rs 380 crore in Series C & D equity making it a landmark year for Aye.
Since inception we have raised over Rs 850 crore in debt with debt lines from the 3 leading banks of India – SBI, ICICI and HDFC, as well as leading global impact investors – Blue Orchard, Symbiotics, ResponsAbility Investments, Triple Jump and others. The flow of funds from our partners, debt as well as equity, has kept pace with our accelerated growth, and I do not see that changing in the future.
ET: Unlike a traditional one size fits all model, offering an industry-specific credit delivery framework is a key requirement for success in the digital lending domain today. Tell us how Aye Finance achieves this goal?
SS: We follow a structured industry-cluster-enterprise approach and use a cluster based method that uses the insights of each industry cluster for robust risk selection. This is further honed by analysing the data gathered by servicing more than 1,25,000 customer loans across 70 industry clusters. In the coming year with the opening of 60 additional branches, the number of clusters we serve along with the number of microenterprises funded will go up significantly.
ET: The role of credit rating agencies is critical in lending to MSMEs. Would you like to highlight any gaps in their approach?
SS: The credit rating agencies have made some positive moves getting better coverage to the small enterprises. There are significant moves to build SMEs profile through data sets that go beyond the traditional credit and financial information. Yet, for most of the micro SMEs that we find across India, there is little support from credit agencies. I believe that they are moving in the direction of improving coverage to micro SMEs and as the gap is huge (over six crore enterprises), it will take some more years to really make a visible difference to the existing situation.
ET: Tell us about your short to long term plans.
SS: We reached the Rs 1000 crore AUM (Assets under management) recently. Our 5-year-old company is bursting with plans and energy to scale much larger milestones. This year we expand by opening 60 new branches and having a footprint in 22 Indian States. In the next three years, we hope to extend our inclusive credit product to over 5 lakh micro SMEs.
ET: How do you see the government’s recent initiatives on financial inclusion? In term of policymakers’ approach, any missing area or policy gaps you would like to highlight? How your are playing an enabler?
SS: The Government has realised the need of the sector and has started multiple schemes to encourage credit solutions for these bottom of pyramid businesses. The impact might not be as noticeable as the credit deficit facing the 68 million micro enterprises is a humongous Rs 16 trillion.
A few considerations in the following direction can make access to credit for microenterprises more hassle-free than it currently is. These include:
Simplification of the MSME lending process
- Clarify that Aadhaar offline (QR code based) authentication as adequate KYC for NBFCs.
- As MSME lending has higher bounce rates, policy should allow greater flexibility (i.e. do not insist on 5% max bounce rate for eNACH payments for MSME portfolios
- Clarify legal validity of e-Sign mechanisms, viz – aadhaar, clickwrap, etc.
- PSL norm to be applicable to NBFCs lending directly to MSMEs.
- Margin Cap on PSL loans to MSMEs need to be increased from 8% to 12% to make the lending viable (low ticket and higher credit provisions)
- Credit Guarantee Scheme should be made more effective for use by lenders to Micro SMEs
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