Lendingkart, a retail lending platform based in Gurugram, has teamed up with Tata Capital Limited, the financial services arm of the Tata Group, to provide unsecured business loans to MSMEs all over the nation.
The goal of the agreement is to make it easier for micro, small, and medium-sized enterprises (MSMEs) to get the financing they need by utilising Lendingkart’s digital platform.
Loans for businesses, working capital, micro, small, and medium enterprises (MSME), women-owned businesses, and individuals are all available through Lendingkart, which was established in 2014 by Harshvardhan Lunia and Mukul Sachan.
Function of Lendingkart’s Software as a Service Solution
A significant component of this partnership will be the Software as a Service (SaaS) platform known as “2gthr,” which is offered by Lendingkart. It is possible to handle the complete customer process with the assistance of the platform, which includes beginning the process of loan applications, promptly approving them, disbursing funds, and managing collections.
Using this platform, Lendingkart intends to improve access to credit for micro, small, and medium-sized enterprises (MSMEs), making it possible for even underserved firms to take advantage of the loans that are made available through this cooperation.
Meeting the Urgent Funding Requirements of Msmes
The cooperation intends to address the crucial financial needs of micro, small, and medium-sized enterprises (MSMEs), a sector that frequently fails to gain access to credit.
Harshvardhan Lunia, the founder and chief executive officer of Lendingkart, emphasised the significance of the relationship by adding, “Our objective is to increase credit penetration and make financing more accessible and easier for micro, small, and medium-sized enterprises. Through the formation of this cooperation, we will be able to solve the important finance requirements of enterprises that are not being adequately served and achieve higher operational benefits.”
Through this cooperation, it is anticipated that Lendingkart’s technology skills will be combined with Tata Capital’s wide network in order to increase the number of firms that can be reached.
Tata’s Emphasis on the Empowerment of MSMEs
Vivek Chopra, Chief Operating Officer of Retail Finance at Tata Capital Limited, stated that the relationship between Tata Capital and Lendingkart exemplifies the company’s commitment to the expansion of collaborative arrangements. Small and medium-sized enterprises (MSMEs) will be able to capitalise on emerging possibilities and promote thorough company expansion thanks to this strategic plan.
The network of Tata Capital, which has over 750 branches across India, is anticipated to play a significant role in making these loans available to micro, small, and medium-sized enterprises (MSMEs) nation-wide.
Has Facebook stepped into the banking sector? Will they be renamed for their new venture? Is there any other type of loans and services they provide? A lot of such questions popped up as soon as their announcement of the ‘Small Business Loans Initiative’ came out. However, it is important to note here that even in the past couple of years, Facebook has offered such loans or credit grants to small businesses around the world. They wanted to make it easy for SMBs to secure a loan quickly in times of need. India became the first country for Facebook to launch this ‘Small Business Loans Initiative’ programme, which was launched on August 20, 2021. Read further to know about Facebook’s new loan initiative and the reason for its commitment to it.
Small Business Loan Initiative is a new initiative taken by Facebook partnered with Indifi, an online lending platform. Their primary vision is to provide loans to small businesses. They wanted to create an accessible and easy way for SMBs to take a loan without much delay in the process. Businesses that are attached/listed on Facebook, will have the eligibility to apply for this loan.
Though Facebook is leading this initiative, it does not directly involve in the entire process. Fixing the eligibility criteria, processing loans, risks in repayment are all borne by the lending partner. Facebook, on the other side, creates awareness of this programme and formulates regulatory frameworks for this business. It serves as a bridge to connect SMBs with lending partners. India is the first country where Facebook launched this initiative in August 2021. This facility is available to businesses across 200+ cities and towns in India so far.
Components and Benefits of Loan Initiative Programme
Here’s a look at some of the key features of the loan programme:
Loan Amount: Facebook business loan for small business initiative offers the businesses a loan amount ranging from Rs 5 lac-50 lac, which is based on the business requirements. As the majority of the traditional business lenders often shy away from lending money to businesses nowadays, the Facebook loan initiative would certainly be a boon thereby solving the problem of the business capital.
A Quick Process and Collateral-Free: The applicants can apply for this loan online and it won’t even be needing collateral. Furthermore, the application process is really fast and simple. Once it is approved, the loan would be disbursed within three working days.
Fixed-rate of interest: The Facebook-backed business loan boasts of a fixed interest rate between 17%-20% annually. Notwithstanding, the loan amount, which might be anything between 5 lacs and 50 lacs, the rate of interest is capped the same.
Provision for the women: The businesses that are owned entirely or in part by women are allowed special concessions. This would mean a 0.2% reduction in the rate of interest. This initiative is designed to motivate more entrepreneurs in the time upcoming.
Quick Support: After the application, the users would be confirmed for the approval of the loan within one working day. After that, they would easily be able to find out the status of the loan by calling the customer service department of Indifi.
No processing fee: The Facebook loan initiative for small businesses does not require any processing fees.
Collateral-free: The loan initiative programme that has Facebook partnering with Indifi will not need any collateral security against the amount lent.
Why Facebook started giving Business Loans in India?
Facebook’s Business Loan Initiative in India
Facebook has conducted a survey in 2020 with OECD and World Bank, to analyze the challenges faced by Small and Midsize Business (SMB) sectors. The outcome of the survey was the reason for the birth of the ‘Small Business Loans Initiative’. Here are the reasons why:
The survey showed that the major factors affecting Small and Midsized Businesses are Capital and Cashflow. Timely requirement of Capital is necessary for the efficient and smooth functioning of the businesses.
Most SMBs expressed their concern about the time taken to obtain credits from financial institutions.
So, Facebook along with Indifi has taken these issues into its own hands. They provide loans to businesses that advertise through Facebook.
Under this programme, SMBs can receive credits in less than five days.
It is evident that Small Businesses are going to push India’s financial and economic sectors. Facebook acknowledged it by saying that they are doing this for the economic growth of our country.
In the words of Ajit Mohan, Facebook India’s CEO, “We’re not looking to make money from this programme and we don’t have any revenue share. But we are hoping, this creates growth in the economy that will eventually benefit us”.
Facebook just serves as a platform to provide loans through Indifi. This retrieves the businesses from their constraints caused due to lockdown.
Other initiatives by Facebook
Small Grants Programme was launched by Facebook in 2020. Through this, they contributed a $100 million dollar grant to SMBs across the world. This programme was launched in more than 30 countries. This was to support the SMBs that were suffering from the effects of the Covid-19 pandemic.
Small and Midsized business is the major occupant of the Indian business sector. They constitute roughly 63.4 million units spread across the country. They contribute to 6.11% of manufacturing GDP, 24,62% of the service sector’s GDP. They also contribute an enormous 33.4% towards India’s manufacturing output.
Such a huge sector, when affected largely, has an adverse effect on an economy. As a result, India’s GDP for the year 2020-21, has fallen by 7.3%. India hasn’t faced such a huge drop in GDP in 68 years.
Most of the SMBs operate regionally. They require capital for their day-to-day operations. The lockdown implemented across the country was the reason for their steep downfall. When they returned to business, there was no capital to invest. Facebook identified their issue and addressed it at the right time through the ‘Small Business Loans Initiative’.
Indifi is an online financial lender that was started to provide business loans to small businesses operating in India. They serve with a motto ‘We Help Small Businesses Thrive’. They stand true to their words by taking all necessary measures towards SMBs development.
It is an Indian company started by Alok Mittal in the year 2015. They provide financial services to diverse business entities like travel, e-commerce, hospitality, retail, etc., Indifi serves to be the first lending partner to be associated with Facebook.
Conclusion
Facebook has taken measures to promote the country’s economy through various initiatives. It has promised to do more in the future. With these tech giants investing in the business sectors, it is going to be a boon for SMBs and as a result to India’s economy. It’s the right time for Small Businesses to capitalize on the opportunities showered on them.
FAQs
Has Facebook launched the Small Business Loans initiative in India?
Facebook India partnered with Indifi, an online lending platform to provide business loans to small businesses.
What is the loan amount offered by Facebook Small Business Loan Initiative?
Facebook Small Business Loan Initiative offers loans from 5 lakhs to 50 lakhs for small businesses.
What is the interest charged on loans through Facebook Small Business Loan Initiative?
Loans by Facebook for small businesses are offered at interest rates of 17% to 19%.
Sitting on a brilliant business idea with no money to back it up? Funding is a tricky issue for most startups. Finding an investor is always difficult, and the lack of money gives most entrepreneurs jitters in the initial days. That is when they look at startup loans or guaranteed payday loans – two interesting funding sources you too must have heard of. While business loans are helpful in most situations, they have some disadvantages too. Let’s have a look at both the pros and cons of startup business loans so that you can decide if they’re the way for your startup.
Everybody wants to upscale and keep all their business’ shares with themselves. This pleasant situation is made possible by business loans. The owners keep their company’s hold and also enjoy the luxury of upscaling their startup.
With investors comes the hassle of managing the board with their preferences. Having distributed stocks reduces your profits with time. Lenders usually have no interest in your management. They care only about money and give out loans without asking for extra perks.
Temporary in nature
Business loans are for a limited time. After the whole loan is repaid, the lending institution won’t bother you. On the other hand, attracting investors comes with an obligation to pay dividends to the shareholders regularly, which may last as long as the company.
With time, the dividend sum increase with the increase in the company’s worth. Startup business loans, on the contrary, reduce steeply as you keep repaying. This temporary nature of loans makes them worth a try for those looking to stay financially freer.
Build business credit
As the company grows, production increases rapidly, and so does the need for money. Even if you did not start your company with a loan, you might need to expand or design a new product or service.
A credit score is important for lenders to consider your loan application. Taking a startup loan and repaying it on time can get your company a good credit score, opening the gates for future loans. Without a credit record to build on, some lenders might not give you a loan later if you need one to expand.
Personal Wealth Can Be Safeguarded
A starting business loan might assist you to separate your personal money from the finances of your company. Every new business initiative carries a risk; even the most well-planned venture may confront challenges beyond your control as the owner.
Disadvantages
Not easy to get
Getting startup business loans approved is a tough cookie. Unless you already have an established business or some collateral to pledge, there’s very little chance that a lender will trust you.
With the recent financial crunch they have found themselves in, banks and NBFCs have a strict policy concerning lending. Only businesses which they believe can repay the loan can get the loans. With such high scrutiny, it becomes infinitely difficult for a new and fresh startup to get loans. The difficulties in availing of loans are decreasing with time, but the hassle is significant even today.
A high rate of interest
Lenders’ most significant way to earn money is through interests. These interests can break the backbone of any small business. As a small business owner, it gets challenging to manage the competition and interest rates all at once.
As time passes by, every business faces a low-revenue phase. High-interest rates during those low phases can hurt you even more and potentially result in bankruptcy. Interest accrues as you delay payments, and you might soon find yourself into a black hole of financial trouble. To avoid this, however, you can plan repayments efficiently and opt for lower-interest loans.
Less Money to Invest in Business
Startup loans naturally come with a repayment obligation. As you repay heftily to the bank every month, you will be left with little cash to reinvest in your business’ growth. You might even have to compromise on buying equipment or hiring new employees. These restrictions can hamper the speed at which you had envisioned your business growing. However, better cash flow management can save you from this trouble as well.
Your personal money will not be safeguarded by a small business loan. Because lending to small businesses has a higher risk, many financial institutions want a personal guarantee, which means the bank can pursue you for repayment if the business fails. As a result, your credit score and assets may be affected.
If you’re concerned about the impact on your personal credit, we recommend waiting a few months until your company is more established. That way, you’ll be able to pay back your loan on schedule while maintaining your good credit.
Katerra, a modular construction company, filed for Chapter 11 bankruptcy protection in early June 2021. In 2018, the SoftBank-backed unicorn was valued at $3 billion and had raised over $1.5 billion in total capital from Khosla Ventures and Greenoaks Capital Management, among others.
Although mismanagement was regarded as the cause of the company’s demise, the failure of lender Greensill Capital just three months prior also played a factor.
While SoftBank was funding Katerra directly, Greensill, a SoftBank Vision Fund recipient ($1.5B), was also funding Katerra, demonstrating SoftBank’s portfolio’s interconnectedness. This downward spiral has caused some to question SoftBank’s Vision Fund’s viability, especially in light of the 2019 collapse of co-working unicorn WeWork, in which SoftBank was the principal investor.
At the beginning of April 2021, Madefire, a digital comics firm, went for an assignment of benefit for creditors (ABC), an alternative to official bankruptcy. For many Madefire users, this was a surprise announcement, as they had been given until the end of the month to download their purchases.
Several digital comics applications, including Archie Unlimited and IDW, were also taken down as a result of the Madefire app. Despite having a diverse roster of musicians and investors, including Dave Gibbons and Drake, the organisation died in the face of competition.
As you think and analyze the advantages and disadvantages of bank loans, understand that opting for a small amount to start your startup is not a bad option if you are a good planner. You may look at guaranteed payday loans in the beginning and think about other options later.
Qualifying for a small business starting loan, on the other hand, could mean having money to start a firm without having to repay loved ones or investors who demand ownership in exchange for their money. Before deciding to pursue this lending option, small business owners should analyse all factors. Let us know what you think about taking a business loan for your budding startup in the comments below.
As the company grows, production increases rapidly, and so does the need for money. Even if you did not start your company with a loan, you might need to expand or design a new product or service. A credit score is important for lenders to consider your loan application. Taking a startup loan and repaying it on time can get your company a good credit score, opening the gates for future loans. Without a credit record to build on, some lenders might not give you a loan later if you need one to expand.
Is Business loans are easy to get?
Getting startup business loans approved is a tough cookie. Unless you already have an established business or some collateral to pledge, there’s very little chance that a lender will trust you. With the recent financial crunch they have found themselves in, banks and NBFCs have a strict policy concerning lending. Only businesses which they believe can repay the loan can get the loans. With such high scrutiny, it becomes infinitely difficult for a new and fresh startup to get loans. The difficulties in availing of loans are decreasing with time, but the hassle is significant even today.
It’s Possible That Your Credit Will Be Ruined?
Your personal money will not be safeguarded by a small business loan. Because lending to small businesses has a higher risk, many financial institutions want a personal guarantee, which means the bank can pursue you for repayment if the business fails. As a result, your credit score and assets may be affected. If you’re concerned about the impact on your personal credit, we recommend waiting a few months until your company is more established. That way, you’ll be able to pay back your loan on schedule while maintaining your good credit.
Over the most recent few years, the microfinance area has seen promising development on the rear of the quickly developing Indian economy. The area has been instrumental in offering formal credit to underserved low-pay families and miniature, little also, medium endeavors (MSMEs), consequently expanding the commitment of these fragments to India’s general GDP.
In FY19, the microfinance area showed 40% development as far as advance portfolio. With progressions in innovation, advancement of administrative approaches, new associations and dispatch of different items, the area is required to keep up the current level of development soon. Let’s look at what exactly is a microloan and the Indian companies providing microloans.
Microloans also known as Microlending are short term loans that are generally smaller in amount. The micro loans can be availed by Self-employed, startups, micro entrepreneurs, small businesses and individuals who have a low capital requirement.
It is a type of small finance which is provided to low-income group or entrepreneurs who have very limited access or no access to lending institutions.
The RBI with the help of the Government of India has partnered with private limited companies and Micro Finance companies in order to provide micro loans to unbanked and underbanked people to provide them with loans.
The major purpose of microloans is for various business-related activities, meeting working capital requirements, starting a new business, maintaining cash flow, paying salaries to staff, managing day to day expenses, debt consolidation, etc.
Average Loan amount Borrowed in India as per the Age Group
Companies providing Microfinance loans in India
Bandhan Bank
Bandhan Bank provides microloans of a minimum of INR 1000 to a maximum amount of INR 25,000. The interest rate charged by the bank is 17.95 % onwards as of 2021 and there is no processing fee charged by the bank. The repayment tenure of the microloan is up to 12 months and the bank provides a doorstep delivery of the loan.
BSS Microfinance
BSS Microfinance provides microloans for a minimum amount of INR 12,000 to a maximum amount of INR 50,000. The interest rate charged by the company is 25 % onwards as of 2021 and a 1% processing fee is charged with the loan amount of above INR 25,000. There is no collateral required for availing of the loan.
Annapurna Microfinance
Annapurna Microfinance provides microloans for a minimum amount of INR 10,000 to a maximum amount of INR 80,000. The interest rate charged by the company is 21.90 % onwards as of 2021 and a 1% processing fee + GST is charged with the loan amount that is borrowed. The repayment can be done monthly, weekly or fortnightly according to the preference of the borrower.
SKS Microfinance
SKS Microfinance provides microloans for a minimum amount of INR 7,591 and a maximum amount of INR 11, 610 for the first time and for the next time onwards depending on the credit score the company provides an increased set of INR 14, 959. The interest rate charged by the company is around 23.55% onwards as of 2021 and a 1% processing fee is charged on the loan amount.
Equitas Small Finance Bank
The Equitas Small Finance Bank provides microloans for a minimum amount of INR 2000 to a maximum amount of INR 35,000. The interest rate that is charged by the bank is 23 % onwards for the year 2021 and a processing fee of up to 1% on the loan amount is charged. The loan is provided only to Low-income groups and economically weaker section categories.
Ujjivan Small Finance Bank
Ujjivan Small Finance Bank provides microloans for a minimum amount of INR 2000 to a maximum amount of INR 60,000. The interest rate that is charged by the bank is 22 % onwards for the year 2021 and a processing fee of 1.2 % of the loan amount is charged for the loans above INR 25,000. The repayment tenure for the loans varies from 6 months, 1 year, 1.5 years and 2 years.
ESAF Microfinance and Investments P Ltd
ESAF provides microloans for a minimum amount of INR 1,000 to a maximum amount of INR 1 lakh. The interest rate charged by the company varies between 22 % to 26 % p.a based on diminishing charges and also a processing fee is charged with around 1 % to 2 % of the loan amount + GST. The tenure for repayment of the loan is around 3 months to 60 months.
Fusion Microfinance
Fusion Microfinance provides microloans for a minimum of INR 3000 to a maximum amount of INR 60,000. The interest rate charged by the company varies between 21 % to 21.50 % p.a based on the reducing balance method and a processing fee of 0 to 1% + GST is charged. The repayment tenure of the loan amount varies from 8 months to 2 years.
Arohan Finance Services Limited
Arohan Finance Services provides microloans for a minimum of INR 1,100 to a maximum amount of INR 50,000. The interest rate charged by the company is between 20.70 % to 21.25 % p.a. The repayment tenure of the loan amount varies from 3 months to 24 months.
Casphor Micro Credit
Casphor generally provides micro loans for activities such as the construction of toilets, women empowerment, and procurement of gas connections. They provide loans for improving the health and social status of the beneficiaries.
The micro loans provided by the company would be for a minimum of INR 2000 to a maximum amount of INR 14,000. The interest rate charged would be around 23.94 % to 24.53 % and also a processing fee of 1 % on the loan amount if charged by the company. The repayment tenure varies from 52 weeks, fortnights or months.
Asirvad Microfinance Limited
Asirvad Microfinance provides micro loans for a minimum amount of INR 2,498 to a maximum amount of INR 45,000. The interest rate charged by the company is around 21.70 % p.a. and the loan repayment tenure varies between 12 months to 24 months.
Conclusion
The objectives of microloans are to promote the socio-economic development among the low income group, to reinforce self help groups and develop the economy of the country and also to support and promote women entrepreneurship and startups across the country.
FAQ
What are microloans used for?
Microloans are used by Startups or Entrepreneurs who may have trouble getting financing from other sources, such as banks.
What is micro loan?
Microloans are loans that are provided to small business owners and entrepreneurs who may have trouble getting financing from other sources, such as banks.
Who is eligible for micro loan?
To be eligible for micro loans You must be between 25 years and 65 years of age, Your business should have a vintage of at least 3 years and You should have filed income tax returns for your business for at least one year.
The Reserve Bank of India on 5 April 2021 had announced it has reopened the one-time loan restructuring programme for individual borrowers. Let’s look at what exactly is loan restructuring and the details of the loan restructuring programme reopened by RBI.
Loan restructuring is a feature that will allow the banks to change or modify the terms and conditions of the loan provided to an individual when they are facing a financial crisis. Banks do these in order to avoid classifying the loans as Non-performing assets and to avoid declaring the borrower as a defaulter.
If the customer will be classified as a defaulter, then the bank will have to keep aside the loan amount which will reduce the profits of the bank.
The restructuring programme may be done by the bank in different ways such as changing the interest rate, repayment period, extending the time, changing the installment amounts, etc.
RBI restructuring programme
RBI Restructuring Programme
The RBI had re-opened a one-time restructuring programme under which the bank will be able to let their borrowers to reschedule the payments they need to make or to extend the moratorium period to a maximum of two years.
This moratorium will not be like the last year’s blanket moratorium. The banks will have an option to choose or pick the borrowers who will be eligible to be part of the restructuring programme and based on the bank’s internal appraisal the period of the moratorium will vary.
Types of Loans included in this restructuring programme
Some of the types of loans included in this restructuring programme would include credit card receivables, consumer durables, personal loans and auto loans. The banks also can include a resolution plans for loans such as educational loans, home loans and loans given for the investment in financial assets.
Eligibility
The eligibility criteria for the loan restructuring programme are that the loan account should be classified according to the standards which means that there shouldn’t be any default or pending payments on the installments as of 31 March 2021.
For the individuals who had opted for a loan restructuring programme under the scheme will be provided some relief as well. The RBI has given the freedom for the banks to modify the plans and the moratorium period by 2 years.
The banks will be allowed to reschedule the payments which can be through reducing EMI payment amount which will extend the time period. The banks have also been provided with an option where they can convert interest accrued or the interest which should be accrued into another credit facility.
According to the assessment of the borrower’s income streams the bank will be able to provide a moratorium for a certain period of time. The RBI had conveyed in a notification that there will be no permission provided for compromise settlements.
If the banks are planning to grant the moratorium then it would be for a maximum of 2 years and the moratorium will come into force immediately upon the resolution of the plan.
FAQ
What does RBI mean in banking?
The Reserve Bank of India (RBI) is the central bank of India.
Why is RBI called Bankers Bank?
In India, Reserve Bank Of India is known as the banker’s bank because it acts as a bank for all the commercial banks in India.
Is RBI Public or private?
Reserve Bank is fully owned by the Government of India.
Conclusion
The economic activities in various parts of the countries have come to a stand still as there has been an implementation of the lockdown. Most of the individuals have lost their income streams where the others would have lost their jobs. This will make it harder to repay their loans and this initiative from RBI will reduce the losses of the banks and the financial stress of the individuals.
The new year brings fresh and innovative business prospects to your creative minds. Granting start-ups will make those innovations feasible.
Yet it’s not always straightforward to address the issue of how to get funding for a startup. You must know where you are going to look and get ready to do the job you need to make your dream come true.
It is time you took a near dive into your investment opportunities if you really want to get a startup off the ground and see it become a profitable venture.
The first stage anytime you need money to start up a company is to report the initial costs. Take out all needless or unsustainable costs in order to detect the critical criteria of the startup.
The loans are currently provided for value of ₹1 Lakh to ₹1 cr with the rate of interest more than 8%. MSME Business loan in 59 minutes initiative aims at loan appraisal process automation ultimately resulting into getting eligibility letter , in-principal approval in lees than an hour. post the in-principle approval, the loan is expected to be sanction/disbursed in 7-8 working days.
To be eligible for this loan as a borrower you should be GST, IT compliant and must have six months bank statement facility. The business loan eligibility is determined by a company’s, income/ revenue, repayment capacity, existing credit facilities, any other factors as set by lenders (banks)
The Credit Guarantee Scheme (CGS)
Stand Up India Scheme Coir Udyami Yojana National Bank for Agriculture and Rural Development (NABARD) Credit Link Capital Subsidy Scheme National Small Industries Corporation Subsidy Pradhan Mantri Mudra Yojana Sustainable Finance Scheme SIDBI Make In India Soft Loan Fund For MSME
Startup loans for budding entrepreneurs
Startup Loan Initiated by the Government
In order to collect funds to launch your own company or extend your existing business, you can secure a start-up business loan from any bank or financial institution. The interest rate paid to the bank depends on the amount of the loan you earn and the tenure of repayment.
What To Consider While Requesting A Loan?
The borrowers shall execute the paperwork required and send documentation for the use of these credits. As the government funds the projects, some of the loans are free of collateral. In the following you will notice some points to review before applying for the loan:
1. Personal record: background information is reviewed. Crimes performed or criminal history will disqualify or postpone the loan sanction phase.
2. Based on resume or company background: information of the company and applicant’s skills in developing the business will be asked.
3. Business proposal: the borrower has to bring into the loan document a well-considered business plan.
4. Business and personal tax return: for a period of three years, candidates must submit personal and corporate tax returns.
5. Financial reports: the claimant shall apply the statement of benefit and loss, the bank statement, the balance sheets, and the cash flow forecasting.
6. Legal documents: the requester must ensure that the company works legally.
7. Collateral: collateral strengthens your profile and will assist you to receive a greater amount of loan.
The qualifying conditions for the use of start-up corporate loans can vary from borrower to creditors but are generic and therefore been listen below:
1. The candidate must not be under age 21 or must not be above the legal age of 65 years.
Age Group who can Apply for the Loan
2. The nominee must be an Indian resident.
3. Candidates should include a corporate strategy.
4. The firm will need an incubation letter
5. The organization must deliver a framework and product for innovation purposes.
6. A patron assurance from the Indian Patent and Trademark Office should be secured by the company.
7. It must be a young firm and not more than 5 years old.
Interest Rate For Startup In India
The interest rate and maturity tenure differ between banks. The interest rate, though, varies between 10.99% and 21% a year. The sum lent shall also be subject to a transaction fee. The tenure is up to five years.
A huge number of start-up firms live in India. The number of cottage industries and small units is increasing. However, start-ups and micro-industries need capital to grow, manage, and succeed in the global giant market. Since these units lack access to price raising, the Government has taken the lead to fund these small scale enterprises and facilitate them.
Company Profile is an initiative by StartupTalky to publish verified information on different startups and organizations. The content in this post has been approved by the organization it is based on.
Micro, Small and Medium Enterprise (MSME) Sector has emerged as a very important sector of the Indian Economy, contributing significantly to employment generation, innovation, exports, and inclusive growth of the economy. Micro, Small and Medium Enterprises (MSME) are the backbone of the socio-economic development of our country.
It also accounts for 45% of the total industrial production, 40% of total exports and contributes very significantly to the GDP. Manufacturing segment within the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.5% of services. The total contribution of MSMEs to the GDP is 37.54.
U GRO has created a range of Sector Specific LoanProducts, using a combination of industry data and advanced analytics to unlock the true potential of business. Using sectoral knowledge from financial and non-financial sources. U GRO deep-dive into the ecosystem various business operates into understand the growth of the business venture.
U GRO Capital has developed a sophisticated and self-sufficient underwriting process, which is capable of approving principal loan to customer in less than 60 minutes. Their constant efforts towards bettering their existing processes have enabled them to launch an end to end digital platform – Sanjeevani, which is built upon a deep digital architecture, towards easing the borrowing experience and quickening the disbursals as the entire process, from filling the application form, sharing documents and getting disbursal of the loan can be completed from customer’s workplace within 3 – 5 business days.
U GRO Capital was the first organisation to adopt a sector specific strategy; the company realised that the cash flows of an electrical equipment manufacturer will be very different than that of an education institution or a pharmacy store – which implies that these entities need to be assessed in very different ways. U GRO deep-dive into the ecosystem various business operates into understand the growth of the business venture. Their statistical predictive models, augmented with external data sources, power assess business and create super-customized sustainable solutions that offer better prospects for long term growth.
They have solved for this using their proprietary solution “GRO Score”, which was implemented from day one of business operations. GRO Score utilizes a wide range of sector-specific parameters to estimate default rates. It has a Gini co-efficient of over 60%, indicating a high degree of stratification, and thus allowed them to remove 70% of ‘bads’ by removing the bottom 20% by GRO score.
U GRO Capital- Founders
U GRO Capital is founded by Shachindra Nath.
U GRO Capital founder | Shachindra Nath
Mr. Shachindra Nath has over two decades of experience in the Indian Financial Services industry, with a proven track record of building and scaling large financial institutions. He was formerly the Group Chief Executive Officer of Religare, where he successfully led the IPO process and established multiple successful new business lines. He began his entrepreneurial journey with U GRO Capital, where he seeks to build an institution that will provide real value to society and stand the test of time. He is a qualified lawyer and a University Rank holder from the Banaras Hindu University (India).
Abhijit Ghosh – Whole Time Director and CEO, is a passionate and visionary leader who brings more than two decades of experience to the company from his key roles across Banking & Financial Services, Consumer Appliances, Hospitality, Telecom & Healthcare. Prior to coming aboard, Abhijit served as the President and Chief Business Officer at Religare Finvest Limited. He has also worked at ABN Amro, Future Capital and ICICI Bank. He is a Science Graduate from the University of Calcutta and an alumnus of Kellogg Executive Education & XLRI Jamshedpur.
Anuj Pandey – Chief Operating Officer, is a founding team member who leads the Product, Strategy, Marketing, Technology, Analytics and Process functions at U GRO. Anuj brings 20 years of experience across firms such as Barclays Bank, ABN AMRO Bank, GSK Consumer & Religare Finvest. Anuj holds a Bachelor’s degree in Engineering (Mechanical) from Thapar University & PGDM from IIM Lucknow.
J. Sathiayan – Chief Business Officer, is a finance and banking professional who brings over two decades of experience in the domains of SME and Business Finance, Retail Liabilities and Assets, Third Party Products Distribution and other financial services at Religare Finvest and ABN Amro.
Manish Agarwal – Chief Risk Officer, is a member of The Institute of Chartered Accountants India, The Institute of Company Secretaries of India, and the Institute of Cost and Works Accountants of India. He has previously held roles including Chief Credit Officer at YES Bank and Head of Policy for Retail, Agri and SME at ICICI Bank.
The Company currently has nearly 200 employees and a loan portfolio of approximately INR 1,000 crores. U GRO has had a culture of innovation since inception, which has allowed for the many developments made. The organization has a relatively flat hierarchy, and senior management consistently interacts with employees of all levels within the firm.
The trigger behind instituting U GRO Capital could be traced back to the reflection on the state of MSMEs. It is really hard to acknowledge the fact that despite the MSME segment contributing to 30+% of India’s GDP, a vast majority of it lacks access to formal credit. U GRO was hence, instituted to ‘bridge’ this credit gap by utilizing our deep knowledge of the sectors, to build products optimized to the MSME needs, technology driven underwriting process for comprehensive assessment of MSMEs, critical to cater to thin file customers and also to achieve scale and enabling watertight corporate governance to eliminate possibility of egregious breaches in other market players. NBFCs are generally more nimble and able to specialize than banks, making them ideal for lending to the MSME segment, where a degree of specialization is requisite for good underwriting
U GRO was instituted with the buyout of Chokhani Securities Ltd, followed by its capitalization and rebranding with new management and business model to U GRO Capital. The technology architecture started with the building out of internal core processing platforms – LOS and LMS. Post this, the focus has been on developing tech modules for facilitation of each distribution channel viz. GRO Xstream for BFSI, GRO+ for Traditional Branch-led, GRO Chain for Ecosystem and GRO Direct for Direct Digital.
The company’s name was derived from the mission statement. U GRO was founded with the vision of ‘Solving the unsolved: India’s $300B MSME Credit Gap’, and their name speaks to their commitment to their MSME customers – they want to see “U GRO”, or they grow.
U GRO Logo
Shachindra grew up in a small town and in his early experiences in the carpet industry, he noted just how difficult it was to scale businesses as a result of insufficient financing availability. U GRO Capital is the manifestation of his dream of providing adequate financing to all fundamentally strong MSMEs, such that those entrepreneurs can achieve their own dreams.
U GRO caters to specific SME sectors by using their advanced knowledge of 8 sectors to create insightful loan products for each sub-sector. They use a unique combination of intelligence & technology using statistical predictive modelling to understand a prospective customer’s potential for growth. Their sub-sector level knowledge is derived from over 25 financial & non-financial sources to understand the ecosystem which the customer operates in.
U GRO Capital’s mission is to ‘Solve the Unsolved’ – the US$ 600Bn Small Business Credit Need. U GRO Capital believes that the problem of small businesses can be solved by building deep expertise around core sectors of MSMEs in India coupled with a data centric, technology-enabled approach.
U GRO Capital- Target Market Size
U GRO Capital is a pureplay MSME lender. The total addressable demand for financing from Indian MSMEs is ~INR 45 trillion, as estimated by IFC. Of this demand, only INR 23.7 trillion is met through formal sources – largely banks, NBFCs and other FIs. This leaves a gap of INR 21.3 trillion, which is estimated to be growing at over 7% per annum. U GRO’s vision is to cater to this gap.
MSMEs can avail capital through U GRO’s operational four-pronged distribution model-
Traditional branch-led channel: Sourcing through GRO-Partners (DSAs) – secured and unsecured business loans
Partnerships & Alliances channel: Sourcing through our fintech, machinery and BFSI partners to provide both secured and unsecured term loans with a range of tenures and rates basis security and collateral type
Ecosystem channel: Vendors, dealers and distributors of our partner Anchor corporates can avail supply chain financing from them with invoice collateral
Direct Digital channel: SMEs can directly apply for financing through their website, or through their fintech partnerships
While they have maintained a keen focus on their initial prime/near-prime target segment, they have also worked towards addressing a broader demographic as per their efforts to solve India’s MSME credit gap. This has seen them already cater to the working capital needs of vendors associated with their ecosystem anchors. Additionally, U GRO has built out a 9th statistical scorecard for microenterprises. Microenterprises behave as a homogenous group by size rather than by sector, making it ideal to build a separate scorecard to address all enterprises of a certain size and below rather than to try and underwrite them using their extant sector scorecards.
The coming months will also see the company launch their direct distribution branches. Until now, U GRO has 9 branches in Tier I metro cities, and these largely cater to the aforementioned prime/near-prime segment through an intermediated mode of distribution. In order to cater to MSMEs in Tier II/III metros and sub-urban locations, they will open branches in such locations and reach out directly to MSMEs. This will also see them foray into a higher yield segment.
U GRO Capital- Business Model and Revenue Model
The core revenue model is raising liability at low rates and disbursing loans at higher rates, thus earning spreads – riskier segments will have larger spreads, but this is counteracted by higher rates of bad loans Additional fee-based income sources come from upstream co-lending and other assignments. Incremental revenue sources include cross-selling, particularly insurance.
MSME loan requirements range from INR 1 lakh to INR 5 crores depending on sector in which they operate and their respective turnovers and business needs, and they step in to cater to the varying requirement, via their corresponding tailored services. In terms of pricing, their average yield on book for secured loans was 11.7% in June 2020, 18.5% for unsecured loans and 13.3% for supply chain financing.
On a blended portfolio level, U GRO’s yield was 14.1%. This is as compared to their weighted average on-book borrowing rate of 10.5% as of June 2020 – a figure that has come down significantly, and thus increased their spreads. The commissions to their U GRO Partners (DSAs) are in line with market norms.
U GRO’s first customers were achieved through a mix of their branch network and the BFSI partners, although largely the former. Their initial investment in branches and human capital infrastructure really increased the ease in building up their customer base, and U GRO reached 100 customers very shortly after commencing lending operations.
U GRO Capital- Marketing Strategy
Analytics and technology have been significant parts of U GRO’s organization structure from day one – it is a core strategic focus area for them, and they have invested in requisite manpower and infrastructure to enable advanced applications. This has resulted in their early success stories – their loan origination platform which connects to 24 external APIs and can produce an in-principle decision within 60 minutes, and their customized business rules engine which hosts all the credit policies and credit scores. U GRO has crossed Rs.1000 crore of disbursal and turned profitable in the first year and 100% of the loans have been processed through the system using their policies and analytical models.
U GRO is a fast maturing analytics practice with vertical competencies on data engineering, portfolio analytics and on-boarding science/ predictive modelling. They are making rapid strides in taking advance data science and ML/AI based applications to the market. They have developed an in-house ML deployment engine and are in final stages of implementing our home-grown alternative data model for credit assessment. Work has progressed to a great extent in their bid to digitize processes that have always been physical – such as location assessment, alternate data-based fraud checks, facial recognition and object identification.
They have also forged key partnerships across a number of channels, which are critical to their forward strategy as they allow for low opex methods of scaling up their book. The company has over 35 partners in their partnerships and alliances channel, ranging from partner BFSIs to fintechs to machinery partners. They also have 26 ecosystem anchors, through whom they lend to vendors. Notably, they have 5 marquee upstream co-lending partners – including SBI, Bank of Baroda and ICICI Bank.
For India’s largest public and private sector banks to be willing to co-lend with them at such an early stage is a huge indication of their trust in our abilities, especially as it pertains to being able to source and underwrite high quality MSME loans. Co-lending represents a highly value accretive channel as it comes with a combination of income on interest spread and also fee income.
It goes beyond saying that the COVID-19 was the most devastating thing happening to not only our economy but the entire world. It also posed as the biggest challenge to U GRO, too.
The pandemic induced lockdown was responsible for short term impact of non-disbursals from March to May 2020. The asset side goals being pushed back, they shifted their focus towards strategic improvements in order to make up for the lost time. They were to a great degree able to increase its capabilities on technological and governance fronts, towards their long-term goal of achieving an entirely digitalized underwriting process.
This included the integration of video KYC and digitalization of the personal discussion process and customer loyalty framework, and the development of an in-house rule engine. With a highly self-sufficient underwriting process and their strong liquidity base, they were able to resume our potential operations pretty strongly as their July disbursals bounced back to a staggering 80% of pre-Covid levels. As of September, they have fully re-achieved pre-Covid levels of disbursements despite the many limitations still in place as a result of social distancing. U GRO fully expect to be able to build on this and further scale their asset engine in the coming months and years.
U GRO Capital- Funding
Date
Stage
Amount
Investors Name
Dec 2017
NA, demerger of lending business of Asia Pragati
175 Cr.
PAG and Others
Dec 2017
Preferential Allotment
435 Cr.
ADV Partners, NewQuest, Indgrowth, Samena
May 2018
Preferential Allotment
192 Cr.
Large family offices and high net worth individuals
August 2018
QIP
112 Cr.
PNB, Samena
U GRO Capital- Advisors
One of the key advisors to U GRO is:
Global Value Creation Partners – led by Sanjeev Goel, ex-Head of Equity Investments FIG for EMENA and Asia at IFC.
U GRO Capital- Acquisitions and Mergers
U GRO Capital was formed through the acquisition of Chokhani Securities Ltd, there have been no further acquisitions till date.
U GRO Capital- Recognitions and Achievements
World BFSI Congress Awards by ET NOW in the categories – Financial Services, FinTech & Loan
‘Finnoviti Award 2020’ by Banking Frontiers, partnered by Deloitte in the category ‘Business Model – Innovation’
India NBFC Summit 2019 Awards by Perfios: ‘Rising Star of the Year’
Companies & Education Awards 2019: ‘The Most Trusted Company Emerging NBFC’
U GRO Capital- Future Plans
U GRO operates through their nine branches: Mumbai (Head Office), Delhi, Kolkata, Bangalore, Chennai, Hyderabad, Ahmedabad, Jaipur and Pune. The Company’s total income stands at Rs. 30.79 crores for Q1 FY21 with a PAT of Rs. 3.73 crores and CRAR of 99.42%. The net worth of the Company stands at Rs. 926.1 crores as of June 30, 2020 with book value per share being INR 131.31.
The Company’s AUM at the end of June 30, 2020 stood at INR 847.4 crores across 7,343 customers. Of the total loan book, 69% is secured. Sectors including Education, Light Engineering and Electrical Equipment & Components constitute 54% of the total loan book whereas geographical concentration at a state-level is at a maximum of 21%. Notable partnerships include co-lending partnerships with SBI, Bank of Baroda, ICICI Bank
While it is not possible to predict the trajectory of the pandemic and the subjectivity of the future, assuming a gradual remission, the company can positively expect to be normalized by the end of FY21.
For lending in post-Covid times, they have created an evolved loan program Sanjeevani which aims to boost the capital starved MSME sector. Already a pivoting platform, we continuously strive towards enhancing its self-sufficiency, as they commit to reach out to 500,000 MSME clients.
Microfinance – also called microcredit- is a way to provide small business owners and entrepreneurs access to capital. Small and individual businesses don’t have access to traditional financial resources from major institutions. It is harder to access loans, insurance, and investments that will grow their businesses. This sector has been instrumental in creating opportunities for low-income households by providing credit access to 64 million unique live borrowers who were previously beyond the reach of traditional financial services. Additionally, the microfinance sector has its own set of challenges, ranging from lack of formal credit history, absence of collateral, laborious customer acquisition process, and low digital and financial literacy. There are various microfinance models in India many of these models are indeed ‘formalized‘ versions of informal financial systems.
Some of the significant features of microfinance are as follows:
The borrowers are generally from low-income backgrounds
Loans availed under microfinance are usually of a small amount, i.e., microloans
The loan tenure is short
Microfinance loans do not require any collateral
These loans are usually repaid at higher frequencies
The purpose of most microfinance loans is income generation
Market share of financial institutions in outstanding portfolio
Government initiatives play a significant role in channeling the credit flow to underserved sectors through priority sector lending, Micro Units Development, and Refinance Agency Ltd. (MUDRA) Yojana, loan co-origination, and private sector investments. In the last couple of years, the microfinance sector has seen promising growth on the back of the rapidly growing Indian economy.
Microfinance in India
Small and medium enterprises (MSMEs), thereby increasing the contribution of these segments to India’s overall GDP. In FY19, the microfinance sector displayed 40 % growth in terms of the loan portfolio. INR 10 billion funds have been released by the Small Industries Development Bank of India (SIDBI) to boost the microfinance sector. SIDBI has tied up with non-profit organizations and social ventures to channel funds at below-market rates to facilitate affordable borrowing.
In recent years, the microfinance sector has faced new challenges such as:
Limited access to low-cost funding for Microfinance Institutions (MFIs)
Low financial and digital literacy among targeted Borrowers
Over-borrowing
The demand for more innovative
Customer-centric products
Reserve Bank of India (RBI) has played a significant role in enabling the microfinance sector to reach out to new geographies. Recently, the Government of India has also increased the microlending limit of borrowers to INR 1.25 lakh to expand the reach of the microfinance sector.
The target community forms an ‘association’ through which various microfinance (and other) activities are initiated. Such activities may include savings. These associations or groups can form of a youth, women. It is also formed around political/religious/cultural issues. It can create support for microenterprises and other work-based issues.
According to NABARD, SHG-BLP is the world’s largest microfinance program in the world.
Bank Guarantees Model
A Bank guarantee is used to obtain a loan from a commercial bank. This guarantee may be arranged externally ( through donor/donation, government agency, etc. ) or internally (using member savings). The loans obtained may be given to an individual or they may be given to the self-formed group. It is a form of capital guarantee scheme. Guaranteed funds may be used for various purposes, including loan recovery and insurance claims. The guaranteed funds can be used for various purposes such as loan recovery or insurance claims.
Bellwether Microfinance Funds (India) is one such example.
Community Banking Model
In India, community banking looks very different. Self Help Groups (SHG) are often instituted in which members of the local community join together and pool capital resources for lending to members. They value transparency in their practices and utilizing their savings for their purposes of lending.
A successful example is the Royal Bank of Scotland (RBS) Foundation India, which has various microfinancing programs to help the poorest communities across India.
Challenges in accessing credit from the formal sector
Cooperatives Model
A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-owned enterprise. The members are the shareholders and have their share in equity capital. They also share the profit.
Co-operative Development Forum Hyderabad is a successful example of this model. It has built a network of women’s thrift groups and men’s thrift groups.
Credit Unions Model
This model is based on a member-driven credit union, a self-help financial institution. A union of members is formed. These members form the common community. They agree to save together and give loans to each other at a nominal rate of interest. A credit union’s membership is open to all who belong to the group, regardless of race, religion, color, or creed.
It promotes credit as a human right and is based on the premise that the skills of the poor are underutilized. The Grameen Bank (GB) is based on the voluntary formation of slight groups of five people to provide mutual, morally necessary group guarantees instead of the collateral required by conventional banks.
The whole center is jointly responsible for the repayment. Grameen model is being followed by Sarv Seva Abhiyan (ASSEFA), Activities for Social Alternatives.
Intermediary Model
This model positions a third party between the lending institutions and the borrowers. The intermediary plays a critical role in generating credit awareness and education among the borrowers. Intermediaries could be individual lenders, NGOs, microenterprise/microcredit programs, and commercial banks (for government-financed programs). The intermediaries are incentivized in monetary and non-monetary forms.
Individual Banking Model
This is a straight forward credit lending model where microloans are given directly to the borrower. The individual banking model is a shift from the group-based model. The MFI gives loans to an individual based on his or her creditworthiness. It also assists in skill development and outreach programs. Co-operative banks, Commercial banks, and Regional Rural Banks mostly adopt this model to give loans to the farming and non-farming unorganized sector.
Self-employment women’s association in India s one such example to have adopted this model. The members own and govern the group.
NGO Model
NGOs are one of the key players in the field of micro-financing. They help the cause of micro-financing by playing the intermediary in multiple dimensions. Non-governmental Organizations (NGOs) played a vital role in rural reconstruction, agricultural development, and rural development even during a pre-independent era in our country. NGOs became a supplementary agency for the developmental activities of the government and in some cases, they become alternatives to the government.
Non-governmental Organizations are committed to the upliftment of poor, marginalized, underprivileged, impoverished, and downtrodden and they are close and accessible to their target groups.
Various NGOs are helping the cause of micro-financing. For example, MYRADA in Karnataka, SHARE in Andhra Pradesh, RDO (Rural Development Organization) in Manipur, RUDSOVAT (Rural Development Society for Vocational Training) in Rajasthan, and ADITHI in Bihar.
ROSCA Model Or Chit Funds
Rotating Savings and Credit Associations or ROSCAs, are essentially a group of individuals who come together and make regular cyclical contributions to a common fund, which is then given as a lump sum to one member in each cycle. At the end of a cycle, the total fund collected goes to any one member. Rotating Savings and Credit Associations are a means to save and borrow simultaneously. There are lakhs of ROSCA functioning in India today.
It is closely related to the community banking and the Group model, this is the community-based saving and credit model. A group of 25-50 people gets together to enhance their income through self-employment activities. They get their first loan from the implementing agency, which helps them form the community credit enterprise.
Small Business Model
This model places a big responsibility on small and medium enterprises. This has been changing, as more and more importance is placed on small and medium enterprises (SMEs) – for generating employment, for increasing income, and providing services that are lacking.
Future of Microfinance in India
Affordable borrowing for one and all: Easy access to microcredit
Reaching the doorstep of every unbanked customer
The road ahead for a digital microfinance
Leveraging women empowerment and mobilizing the entrepreneurial landscape
India aims to become a USD 5 trillion economy by 2025 and the microfinance industry will play a leading role in uplifting the lives of millions of low-income households and enabling them to contribute to the country’s economic growth.
Chayanika Goswami
