There are numerous accelerators for fintechs….now there is one for NBFCs:
SIDBI & GAME (Global Alliance for Mass Entrepreneurship) have started an accelerator program and onboarded the first cohort. The program is designed to help accelerate the growth of small NBFCs through design interventions and enable them to apply for institutional funding based on holistic evaluation parameters.
The 5-month intense program includes mentorship from domain experts on Risk, Operations, Governance, and Technology. It will encourage and facilitate peer learning, reviews and networking through a blend of in-person, virtual and individualized sessions.
GAME founder Ravi Venkatesan explained the backdrop: “Only 15% of MSMEs are able to access credit formally, which is a major constraint to their growth and success. Small NBFCs are unable to access capital at reasonable rates and lack many capabilities to increase their reach and impact. Our objective was to design a replicable model to enable MSME-focused NBFCs to become eligible for formal funding and be future-ready.”
He expressed the hope that at least 80% of the cohort will receive funding post the program. Over the next year, GAME expects a larger pool of lendable NBFCs who can lend to a large number of MSMEs. GAME aims to boost capacities of 100+ NBFCs in 3 years, thereby boosting credit to MSMEs.
SIDBI CMD Sivasubramanian Ramann explained that the program is fundamentally about building capacity for small but deserving NBFCs. “In this cohort, participating NBFCs will benefit significantly from specific advice, informal interactions with peers, structured reviews and evaluation. We have built in the process to ensure that participants demonstrate action to be eligible for continuing to the next stage and mentors endorse and support them ensuring accountability.”
He emphasized that India needs a large number of SMEs to feed into supply chains. “We need to understand NBFCs better so that we can lend to them. We are starting with 18 NBFCs in the first cohort. Our objective is to remove the shadow from these NBFCs and make them part of formal system. We have set multiple eligibility criteria for this cohort, such as AUM of Rs250 million and net owned funds of Rs100 million. We will give these NBFCs debt, but not capital. Tiny NBFCs don’t go to regulated lenders for funds. SIDBI is a DFI and hence it has to step in take risks that a regular bank would not. SIDBI’s NBFC lending has crossed Rs500 billion,” he added.
The funding needs of SMEs are much larger though – atleast Rs25 trillion.
The physical training program will run for 3 days. Banks like SBI and BoB are showing interest. The success parameter is that the NBFCs become bankable and get bank funds. This program is focused on SME lending NBFCs. 40 applications were received from which 15 were to be selected, but ultimately 18 were selected. Regionally, they are spread across West, South and Delhi.
The fee for the 5-month program is Rs1 lakh, but it has been subsidized by 80%. The overall cost is Rs10 million, of which SIDBI is funding Rs5 million, GAME is funding Rs2.5 million and Rs2.5 million will come from other sources. The program encompasses 3 days physical training and rest will be online. CEOs and CFOs of NBFCs are participating in this program. SIDBI and GAME together will give certificate to the participants.
FIDC Director General Mahesh Thakkar added that there was a meeting with RBI governor and RBI will conduct one session with the cohort members. RBI is more concerned about personal loans and not about business loans.
Umesh Ravenkar, Chairman of FIDC and Executive Vice Chairman of Shriram Finance, lauded SIDBI and GAME in conceptualizing this pioneering program to help MSME-focused NBFCs enhance their internal risk management systems, improve corporate governance and adopt appropriate technologies. He felt it would make them more bankable and enhance the flow of credit to micro enterprises.
The bigger question for which everyone wants an answer to is how to get much more entrepreneurship and jobs and livelihoods. Ravi believes that the answer is through growth of tiny firms to small firms into midsize firms. India has approximately 80 million tiny businesses that are not growing. Covid, demonetization, etc, have indeed made it tougher for them. There is a need for credit as only 15% get credit from formal sources at affordable rates. They need credit for working capital and to create assets and to create employment. India wants many more people becoming entrepreneurs, argues Ravi.