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U Gro: Algorithm is the Boss

Irem Sayeed, Chief Credit Officer at U GRO Capital, dwells into business focus and modernization at the lender:

U Gro: Algorithm is the Boss

Manoj Agrawal: What are the approval rates for loan applications at U GRO Capital?

Irem Sayeed: Ours is a very robust system built on a scientific way of selecting borrowers. Our approval rates are very conservative – it hovers around 27% of the logins. Most of the rejections happen before any manual intervention takes place, ie, the entire underwriting process is such that the first part of it is done by algorithms, and then later, individuals are involved to go and meet the customers and evaluate them. So, before it comes to human intervention, 50% of the applications are already filtered out based on a scorecard that we have developed in-house. In fact, we’ve applied for a patient also for this. The initial screening is based on banking behavior, banking practices and also on their past repayment behavior, which is obtained from the bureaus.

What are the business expansion plans?

Our focus has been and will be on MSME sector. We have customers for small ticket loans (secured & unsecured) in the smaller towns. We started expanding this in December 2020 and had all our branches and people in place by the end of December 2021. Currently we have micro branches in Rajasthan, Gujarat, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana states. We will be focusing on growing business in these branches. We are also evaluating expanding small ticket loans in some other states.

Do you reach out to potential customers using seminars or workshops or training programs?

Not workshops, but in the smaller branches, my team is there a large team of people in 76 branches. They have been hired from the local places who know the businesses and have the connects. We believe in having long-term relationships and eventually we want to offer a lot of other value-added services to these customers. We have also launched our Gro X platform that is a direct to customer service without any middleman involved.

As the company grows, is it sticking to the originally chosen verticals?

We have identified 8 industries to start with, and we are sticking to them. In addition, now there is a 9th vertical which we have added which is the micro-enterprise. We realized that the larger enterprises behave as per their industry, ie, a large auto component manufacturer will behave the way the auto industry is behaving, or a large school will behave the way the education sector is behaving, but a micro-enterprise will behave in its own way. So, all small retailers or all small workshops in Gujarat, will have a certain kind of business behavior, and those in say Andhra Pradesh will have a different behavior. Micro-SME is an additional industry that we have identified that is a group with a homogeneous behavior.

This was what we identified in December 2020, and then we set up branches and started hiring people, and the actual business started somewhere around March 2021. So, we have 23 branches for regular business and 76 branches for micro-SME business.

Within the 8 sector, we have 100 sub-sectors for which we follow a very templated approach. So, within hospitals, the operating model for a dentist will be very different from that of an IVF clinic. The success factors for dentist and IVF clinic are very different, and that is important for loan underwriting. Another example is lending to schools. We look at data such as which day of the month do they pay the salaries. If the response is like say 12th of the month, it automatically becomes a high risk for us because if the key asset of the institute is not paid on time, definitely there is a chance of default. The way we operate is that if the algorithm says no, it is a no, and if the algorithm says yes, then there is a layer of human processing.

How are you expanding your reach?

Another way of reaching customers is through co-lending. We have been pioneers and are very successful in partnership with PSU banks. We are using our expertise and this is a focus area for us, where we source and underwrite and a PSU bank can partner and participate in this growth journey. We were the pioneers of this and have 9+ banks that are our co-lending partner. In MSME co-lending we may be the largest and have done over Rs 20 billion of origination. We have also launched our Gro X platform that is a direct to customer service. Customers can easily reach us and directly apply for loans through this medium.

What next in the digital journey?

Data is the next focus area for us. We are moving into a product where customers will be able to apply directly to us. We are building platforms where AI and ML will be the only way the loan that will be underwritten. Within minutes it will be a final decision without any human intervention. Right now, almost every application comes to me digitally – whether from an app or a DSA. A large part of the underwriting also happens only digitally and all the clerical work of data entry and doing some analysis has been eliminated. From day one, we’ve been doing it for the last 4 years very successfully. The next stage is where customers also reach out to us digitally and there is no middleman involved – they just open our app on their device or through an assistant journey, and the loan is approved and disbursed. We have already launched this and are hoping to expand this in coming year. We have plans to reach out to retailers via various integrated eco system platforms and allow a seamless straight through loan evaluation process.

What about the digital capabilities of the borrower as a viable business, ie, digital maturity?

The bank aggregator mode will come into play when this thing happens. Even now, how we consume documents is all digital. So how compatible the customer is, when he is able to provide his GST returns to us digitally, when he’s able to provide us banking digitally, when he’s able to e-sign my agreement – all that indicates how good this customer is going to be going forward. In addition to that, we are also trying to explore other modes of investigations, for example, how much presence the customer has on social media – all of these things will play a part in our underwriting.

How interested are micro-enterprises in becoming social media savvy?

In a few segments – yes – such as the hospitality industry. So, for funding a restaurant or a caterer or small hotel or a resort or a hostel, we would always check what their ratings are. They are also very conscious that these ratings are forming part of their credit rating. Same goes for education business. Lately, there is a lot of focus on ESG, where we very, very diligently look for any kind of negative information on any online forum – such as customer complaints, employee complaints, etc. We try and get relevant PDFs, records and data. Today, every SME is conscious about negative customer feedback.

Have you launched any new products?

We recently launched our GRO X platform. This is a direct to customer medium, where end customer can apply for loan without any middleman involved. The new launch is a credit line on UPI. It uses the same model of banking bureau, GST, etc, and it gives a credit line. Say, entrepreneurs want to participate in an exhibition. What they do is that if they already have a pre-approved loan from U GRO Capital, they just take a loan for say 6 days, purchase the raw material, sell it, and return that money on UPI. Earlier, if they had to take a loan, it would be for a minimum of say 2 months. Also, the borrower’s customer can pay on that same UPI. This helps in increasing the potential to do business.

There are 3 benefits of this program. First is ease of borrowing as there are no middlemen involved. The borrower just goes to our website and applies for a loan and gets the approval instantly. Second, the loan period is for as much time as you want. The loan is based on bureau behavior, banking behavior and on GST data.

Any links between loans and ESG?

Yes. ESG is now one of our focused parameter in underwriting. We have built an ESG score card for all our new customers being onboarded. We acknowledge the importance of being ESG compliant and we ensure that all our borrowers are also compliant.

Thank you very much, Irem.

[email protected]

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