The company expects to continue disbursing Rs1.65 billion loans every month during the current year:
Small Business FinCredit India, or SBFC, is a new-age financial services institution focused on providing credit to small businesses. It has grown significantly in just 3 years after acquiring Karvy Financial Services. In FY 2020 it had disbursed more than Rs11 billion by way of loans and today, the NBFC’s AUM stands at Rs32 billion and it disburses more than Rs1 billion every month.
Mahesh Dayani, Co-founder and CBO, of the company says despite a 6-month lockdown, the company has grown by 40% in 2021. It had a CAGR growth of more than 50% over the last 3 years.
SBFC provides credit to the needy small entrepreneurs in the underserved and underpenetrated markets In FY 2019-20, it had served more than 47,000 customers and some 200,000 customers have derived benefit so far from the company.
Rs70 billion Under LMS
SBFC, which offers a unique loan management services (LMS) to third-party financial institutions, has a strong presence in rural and semi-urban India. “We currently manage Rs70 billion under LMS. About 20% of our company’s profit comes from LMS. The co-origination segment accounts for over 27% of our monthly disbursements,” says Dayani.
The US is the largest market where loan servicing by specialist service providers is prevalent. Dayani says it is estimated that 45% of the total mortgage debt in the US ($11 trillion) is serviced by a party other than the originator.
1200 Staff, 100 Locations
SBFC has been awarded the ‘Great Place to Work Institute Award’ for 2019 which is testimony to the company’s unstinted focus on employee experience. “We have within a short period of time increased headcount to 1200 staff in 100 locations across India. We have more than 120 branches, covering many tier 2 & 3 centers. With efficient employees, we are able to serve a large base of customers, spread across 92 towns in 17 states,” says Dayani.
Given that the product offering is largely homogeneous, execution is key in this segment. Dayani explains: “There is opaqueness of documentation on one hand and complexity of property issues on the other. Given the nature of business, we’ve seen local players concentrated in home states and repeat success in adjacent bordering states. However, there are challenges when one moves outside regions or zones.”
SBFC is a national player in the MSME segment across 15 states. Uniquely, there is no single state contributing to more than 18% of the total exposure. This mitigates the concentration risk when compared with regional peers, who have 70% exposure in 3-4 states, claims Dayani.
Financial, Human Capital
Any financial businesses need capital – human and financial. If someone moves too fast, he/she runs a risk of burning one of them. Dayani elaborates: “In our professional careers, we’ve witnessed companies which grew very rapidly in a short period of time, only to be hit by financial stress (delinquencies) or adverse impact on human capital (attrition or frauds), resulting in long periods of stagnation and lower growth in profitability. It’s important that controls such as hindsight, audit, collections/recoveries, etc, keep pace with growth. The entire organization needs to be focused on profit after provision and not just a pre-provision operating profit, or PPOP, number.
MSME Market Size
Over a period of time, the definition of MSME has widened to cover enterprises having business of up to Rs500 million. Going by the above definition, the aggregate credit to the sector is Rs19 trillion, growing at a little less than 5.5%. Dayani says if you look at pure micro enterprise with limits up to Rs5 million, the total credit to the segment is Rs.4 trillion, growing at 9%. This segment, he says, has largely been served by the unorganized sector and the actual demand is estimated at least 4 times of the organized. These enterprises largely mushroom in clusters outside city centers, he adds.
SBFC will improve its disbursement growth with the external environment unfolding in the next few months. However, given the low business intensity expected in the first quarter of the current FY, Dayani would like to maintain a disbursement run rate of Rs1.50-1.65 billion per month for the full current FY. “This will take our AUM to approximately Rs40 billion, with profits above Rs1.40 billion for March 2022,” says he.
The company is backed by Singapore-based Clermont Group and Arpwood with an equity infusion of Rs8.45 billion. It plans to grow the loan portfolio by 15% every quarter and expand branch network to 150 in the next 18 months even as it eyes conversion into a small finance bank.