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U GRO Capital: Aspirational Goal, Relentless Determination

The story of an entrepreneur who is on a mission to build an institution to solve India’s MSME lending gap:

U GRO Capital: Aspirational Goal, Relentless Determination

Larger numbers are so mind-boggling, such as the number of stars in the universe (200 billion trillion) or the amount of water on planet Earth (1386 billion billion liters). Many man-made things are equally mind-boggling – annual crop output is 10 billion tons, and the 8 billion people on Earth produce 140 million human babies every year. On the financial side, the world’s GDP has risen to $112 trillion and India’s GDP is $3 trillion and growing rapidly, as is plainly visible.

Apart from agriculture, a large part of India’s GDP comes from the MSME sector. India has some 60 million MSMEs with a combined turnover of $1 trillion. Is the MSME sector flourishing? Most would say no, and the primary reason for that is the huge credit gap that this sector faces. The credit gap is equal to the total MSME output, i.e. $1 trillion (Rs85 trillion, Rs85 lakh crore) – another extraordinarily large number like the ones above, and hence worthy of focus and attention.

Shockingly, this credit gap is growing faster than the MSME turnover itself, despite numerous attempts by the government and various organizations.

Why is this credit gap so difficult to shrink, despite the best minds working on it? For one, it is a truly challenging problem. The economic value of shrinking this gap would be immense for the nation, but most lenders have sweeter alternatives. That explains why MSME lending is not keeping pace with demand.

So, who will bell this cat? Will anyone bell this cat? One company has taken up the ante. It has decided that it will do MSME lending and only MSME lending. It has a bold ambition to grow rapidly so that it can make a meaningful impact on the MSME credit gap. It is taking bold bets that it will succeed.

This bold company is UGRO Capital and is led by its founder Shachindra Nath. (The company name is pronounced as U GRO Capital.)

This is not an age-old company with a heritage – it was founded in July 2019. It is actually growing rapidly, at about 75% per annum and its AUM has crossed $1 billion and will soon touch Rs100 billion (Rs10,000 cr). All financial parameters – pre-tax profit, profit after tax, ROA, ROE, cost-to-income ratio, NPA, etc – they are in good shape. But this is a story and not a financial analysis. This story is about the people behind a bold mission, about what they are doing, about why they are passionate, and about how they are thinking differently.

The Founder

Let’s start with the founder. Shachindra was born in Banaras to educators at Banaras Hindu University. He studied commerce and law, and soon found his himself brimming with action in the world of finance. He rose and rose over the years, and had notable successes and recognitions. But in 2015, the joy took a painful turn, he had a bitter battle with promoters and management of his previous company and finally he was forced out because he was unwilling to toe their line. He came face to face with the realization that the only way ahead for him was not a corporate job but entrepreneurship.

He of course had many options as an entrepreneur, but the career twist created a pain in him that made him seek a better goal than just making lots of money.

He decided to make something long lasting, like an institution, rather than something big which could collapse any time. He was curious as to why it is so difficult and time-consuming to build an institution. He quickly realized that building an institution requires a meaningful purpose, and as a financial sector expert, he found that purpose in the persistent and ever-growing gap in MSME credit. Shachindra abandoned golden opportunities to get into wealth management, investment banking or any other easy road to wealth and fame.

Shachindra explains the importance of building an institution: “A business is designed to make profits and hence it is opportunity driven. A business would not care about continually focusing on fulfilling MSME credit. But a business that has the character of an institution would. Hence, the mission to build an institution dedicated to MSME credit.”

Vision & Mission

The vision and mission statements of the company are revealing.

Vision: We aspire to capture 1% market share (Rs20,000 cr) of the total MSME lending market by 2025.

Mission: UGRO Capital’s Mission is to ‘Solve the Unsolved’ – the 600BN USD Small Business Credit Need.

For a startup to have a 1% market share of Rs200 billion ($2.35 billion) in a competitive market with thousands of players and dozens of large and well-established players, is surely a bold vision. There is no way UGRO could achieve this by replicating what the incumbents are doing. It had to find a newer way, a disruptive way. Shachindra figured out that the disruptive way would be the DataTech way. He describes UGRO Capital as a DataTech company, which deeply leverages data and technology to attract and serve customers. The DataTech approach is now proven as the company is consistently yielding results, re-affirming the assumptions and strategies that are the company guardrails.

Shachindra studied law and commerce in college, but if you did not know that, you would get the impression that he has studied at some IIT. His enthusiasm for technology pours out in buckets, happily calling UGRO Capital a DataTech company rather than a traditional lender. His dream is to automate everything where technology can do better than humans.

The company’s mission is more challenging than the vision – solve the unsolved. Being unsolved in an age-old global industry implies that the problem is massive. Unsolved is just one level tougher than unsolvable, and unsolvable is equivalent to infinite. So, to solve the unsolved is a pretty audacious mission. A normal person does not make audacious statements. To embark on such an audacious mission, do Shachindra and his board and his team have some extraordinary capabilities, perhaps a Philosopher’s Stone?

There are so many people in the business world who had an audacious mission – Bill Gates, Steve Jobs, Dhirubhai Ambani, Gautam Adani – to name a few. Time will tell how Shachindra navigates the road and the height of his achievements.

Zero Tolerance For Corruption

One foundation for any institution is trust, and the foundation for trust is ethics. The world of finance is probably the easiest place to be corrupt. Shachindra realized this and he has zero tolerance for corruption. His bulwark against corruption is his own ethics and the ethics committee.

An occasion arose a few months ago where one of the customers accused a branch manager of taking kickbacks for granting loans. This is not uncommon in the lending business and some senior manager could have investigated it and taken the necessary action as per the company’s policy. But Shachindra was not satisfied with a routine response. He got all branch managers to submit their bank and financial details to check for any evidence of income from corruption. The analysis found no evidence of kickbacks. Shachindra has set the standard fit for an institution rather than just a regular business.

Macro De-Risking

The MSME lending space is enormously complex, which is why most NBFCs are niche players – they play on the playground they understand. But a vision for bold growth means that no one playground will be big enough. So, Shachindra had to choose which playground(s) to play on. His first strategic move was to eliminate those lines of MSME credit business where either the business was too vulnerable to changes in government policies (such as export or import driven sectors) or where the industry sectors were less stable. To figure this out, he roped in CRISIL to do an extensive study of loan repayment data. This study narrowed down to 9 MSME segments where macro risks were minimal. These 9 sectors are hospitality, light engineering, auto components, chemicals, food processing, education, healthcare, electrical equipment and components and finally micro-enterprises. To this day, the company continues its focus on these sectors.

Why do many MSME borrowers default? Amit Mande, Chief Revenue Officer, explains that it is either the external cycle that impacts the business or wrong decisions are taken in the business. To minimize the impact of the former, UGRO has chosen sectors where the chances of impact of government policies or Chinese dumping or other such macro events are very low. Amit gives the example of a frozen food manufacturer where the cattle ban finished his business. Likewise, textile dumping from China took down a large number of textile mills. In contrast, a micro-bakery has a vastly different risk profile.

Why is UGRO not in the gold loan business? Amit clarifies that the company is in the MSME lending business, and gold loans are often used for consumption such as marriage or home repair or the like. So, the alignment with the company’s objective is missing.

Scalability Boost

It will be clear to everyone that building an institution takes time. Time equals money, as the wise adage goes. Since Shachindra had an aggressive timeframe, he had to raise a big fund to kick off, but he had no magic wand to do so. He knew from experience that going public was the fastest way to raise funds and hence he figured he should kick-off with acquiring a listed company. He scouted around for a listed company that he could take control of and that is where he came across Chokhani Securities owned and run by RR Chokhani. RR Chokhani was getting old and not really in a position to grow the company aggressively. He saw the synergy between his old blood and Shachindra’s young blood.

The metaphor here is that acquiring a listed company was like attaching a booster to a rocket to help it gain velocity so that it can reach its targeted orbit faster.

Kishore Lodha, Chief Financial Officer, points out a peculiarity of financial services – there is no overnight success as sometimes seen in tech or manufacturing or online. You have to be patient and build up over a period of time. One has to do things ‘right and rightfully’ to reach the destination. There is a lot of regulatory over-hang in the financial sector, compared to any other sector, which makes sudden growth a rarity. All this makes UGRO’s 1% market share dream all the more a challenging climb.

The Head Start Strategy

How is UGRO inspired to be different? Chief Risk Officer Anuj Pandey recounts a case study from his college days. “We had studied the example of Southwest Airlines, which has grown to become one of the largest airline operators. In the early days, when the airline was still small, many doubted its ability to compete with larger airlines. However, Southwest had a different point of view – it was not competing with other airlines, it was competing with people who travel the road. When you start thinking that way, then the market size becomes much bigger.”

The same thinking is at play at UGRO Capital. The untapped market is so huge that it makes sense to invest upfront, and it is a good strategy as well. That is exactly what Shachindra and his team told the investors and explained why they had to invest so much in data and technology. A document-based system would simply not scale, and would soon become a bottleneck to growth. “We were born to scale, to scale in a particular way,” avers Anuj.

Internally, the company has 4 business verticals, and each vertical is like a company. These verticals are prime branches vertical, micro branch vertical, ecosystem vertical, and partnership vertical. Each of them has its own way to solve customer problems. As a result, the bandwidth is required is much higher and that is another reason for the big initial investment in the data and technology teams so as to offer everything that the customer needs.

The Search for CFO

For an NBFC, money is the raw material and the final product, and pretty much everything in between. So, a good CFO is a must. But why will a good CFO join a startup when there are so many opportunities at so many larger companies? UGRO searched wide for an experienced hand and narrowed it down to Kishore Lodha, who joined as CFO in September 2022. was earlier CFO at Hinduja Leyland Finance and Srei Infrastructure Finance.

Despite UGRO being much smaller than the companies he had worked earlier at, Kishore was attracted by the growth vision that he got from Shachindra. Kishore was further impressed by Shachindra’s ability to raise almost Rs1000 cr (Rs10 billion) capital, all with just a few pieces of paper and an idea, something he had never seen before.

How many CEOs share their failures and difficulties when courting future employees? How many CEOs present an honest and complete picture, rather than an ideal snapshot? Shachindra did, and this left a lasting impression on Kishore and doubled his attraction to the company.

Kishore reveals Shachindra’s determination. When he was close to raising capital, demonetization happened. After he was successful in raising capital, IL&FS happened. Then covid -19 happened (phase 1 and 2). Despite this sequence of quakes, there was no lack of determination and Shachindra carried on.

This has parallels with the story of Thomas Alva Edison, who is said to have failed 1000 times and still persisted to invent the light bulb!

Kishore had another surprising experience before joining in. Shachindra made him meet a couple of senior people, which is not something normal for a promoter to do. The multiple conversations helped the company and Kishore to be mutually comfortable before actually coming together.

Kishore recounts that when he joined UGRO Capital, the company was not highly visible in the market; only people from financial services would know of it. It was a nascent organization with 4 years of existence and Rs30 billion of business. But some of the people who knew Shachindra, had a very high opinion of him personally as a very clean and honest person in his approach, in both his professional journey and in his journey as an entrepreneur. Kishore took feedback from a personal friend and also his CEO before finally agreeing to take a leap into exciting territory.

Talking Less, Doing More

Kishore Lodha found many things at UGRO were different from other financial services. He explains: “Everybody talks about using data and technology while doing credit underwriting, but I have met very few people who actually go out and do it. So many companies are still in the stone age and doing manual underwriting. But CRO Anuj Pandey and his team are putting an amazing amount of effort to bring in data and science for underwriting.”

Kishore observed one more uniqueness at UGRO about adopting technology and automation. While there are huge and impressive technology systems at various large banks, they would have the tendency that the final decision will be made by a human being. People trust machines and data and intelligence, but there is a human tendency to override them. This is sometimes fair as people have the ability to see through the data. But seeing through the data and over-riding data are two different things. What is special about UGRO is that they trust what they are building and not making human override a part of the system.

Human Still in the Loop

To be clear, UGRO has not eliminated the human side of the underwriting completely. After machine algorithms approve of a loan application, a credit officer meets the customer, checks the references, talks to the neighbors and does the necessary checks. These credit officers may be young and inexperienced, and hence they are given templated questions for every type of customer. These questions are customized as per the business, whether it is an auto component manufacturer, or a medical diagnostics center or some other business. The credit officer’s decision – based on objective information and subjective feelings (suspicions) – is final, avers Kishore.

For every 100 applicants, the algorithm clears around 50. All those 50 cases are assigned to credit officers, who then reject about 20, and 30 are finally approved and disbursed. Among them, most of the applicants take the loan, maybe 4-5% don’t as they may get a better rate or better LTV or some other reason. That is the lending pattern at UGRO.

Evolution from COO to CRO

Surprisingly, the company’s Chief Risk Officer does not come from a background in risk management. Anuj Pandey started his career in the FMCG sector, then joined ABN Amro Bank and then Barclays. He shifted to the financial sector in 2010 when he joined Religare as product and strategy head. The next change was UGRO Capital, where he was a part of the founding team.

His first role was to create the core engine of the organization which would drive its growth. He became COO and took on the mantle of technology, data science and operations. It was indeed a big transition for someone who had done only business thus far. Anuj acknowledges that this is somewhat uncommon in the banking and lending industry, as people get typecasted into specialist roles. Going from a front-end role to a back-end role was akin to breaking the ceiling, and it created an impact on the people around him.

About 3 years ago when the company’s Chief Risk Officer moved out, Anuj volunteered to be the CRO. Now, with 3 years in the chair, Anuj feels UGRO is doing pretty well from various perspectives such as risk processes, credit underwriting, and portfolio performance.

Removing Specialist Blinkers

For an organization to scale rapidly, what kind of top management is better – specialists or generalists? This is surely an age-old question. UGRO founders pondered over this and decided that having generalists was the better choice.

Wearing different hats as per the need is a niche that UGRO has crafted. The senior team is united in the view that having a holistic view of things is key in lending. Anuj explains: “Business and risk are two sides of the same coin. Many times, people wear their functional hat so strongly, that they are unable to see the other side. That is why typically things go so wrong on a large scale. For someone like me handing risk by design, that problem is unlikely to occur. We are trying to build at one level below this philosophy of looking at things holistically and this will support us in the long run.”

At his previous organizations, Anuj observed the silo structure and how it limited flexibility. “Elephants must learn to dance and be agile, especially when the roadmap is fuzzy. People look at their turf and we have to change that culture,” avers Anuj. Both Anuj and Shachindra agreed early on that all CXOs should get the 360-degree view. This transition of the CXO group becoming well rounded and eventually CXO minus-1 too, will boost the talent, and depending upon the circumstances, one can use the expertise in whichever function one needs to.

Anuj shares an example of shearing the borders that create silos. Every loan that is sanctioned is signed off by the credit officer and also by the sales officer. This gives the sales officer a feeling of the case, so as to not ignore the nuances in the pursuit of targets. Likewise, the credit officer’s job is not just to approve or disapprove, but to build the book. So, both jobs have a bit of the other. A few NBFCs have done this, but hardly any bank, reveals Anuj.

This whole alignment strategy mimics a laser beam. In a laser beam, all the light waves have the same frequency and they are all synchronized with each other. That gives the laser its unique power; the deliberate synchronization that the UGRO Capital management team is aiming for gives them laser-like powers, in cutting through the traffic and finding new ways to vroom ahead.

Investing in the Right DNA

Many start-ups invest primarily in technology or user experience or some narrow area in the initial stages, with the plan to beef up other areas at a later stage. What did UGRO invest in its early stages?

The (not so common) answer is – management bandwidth.

Why? The answer to this odd choice lies in the genesis of the company. UGRO Capital did not have to figure out whether it will succeed or fail. It had to figure out whether it will grow fast or slow. To grow fast, from day 1 itself, the founding team decided that senior leadership must be built up-front for the long term. Indeed, it must be the core DNA, rather than some capability to be added at a later stage.

Anuj explains: “The number of people in senior leadership positions and the kind of experience they have ensures that we don’t suffer any problems when we scale up. Start-ups often face problems once the organization becomes larger. We have been able to grow so fast because this management had the bandwidth from day one. Not many people appreciate or realize this. The typical thought process at a startup is once the book grows to a particular size or once the company earns a certain profit, then it will invest. We said we will upfront invest in management.”

All the CXOs in the company are in their 40s – that does seem like the right age group to leverage the energy of the youth and the maturity of the experienced.

UGRO Capital is one of the rare start-ups whose foundation is DataTech and whose DNA is management bandwidth? How this story evolved and continues to evolve, will surely have lessons for future start-ups.

Holistic Recruitment Strategy

For senior levels, ie CXO-1 and CXO-2, the company looks for well-rounded career experience. For super-specialized roles like data science and analytics, where there is a tendency for people to narrowly super-specialize, UGRO still wants them to have broader exposure as per the company’s culture. How it achieves that is it hires freshers from premium institutes and gives them rounded exposure in the organization. Freshers are exposed for a week in each department to get an understanding and become culturally aligned.

How does UGRO appeal to today’s youngsters? Rajni Khurana, Chief People Officer of UGRO Capital, explains that what they really seek is 3 things: (i) a challenging job (ii) a good work environment, and (iii) flexibility. They want their supervisors to give them the problem and the freedom to solve it.

Rajni Khurana was an integral part of the foundation team at UGRO Capital, where she played a pivotal role in scaling up the people function, establishing culture, values, and policy frameworks. Her first stint saw her working closely with the Board on strategic people agendas, contributing significantly to scaling the organization to 45 branches and 500+ employees.

Currently, it is the second stint of Rajni with UGRO Capital, and her timing is impeccable. The company, now present in 105 branches with over 2000 employees, plans to add 75 branches in the next quarter, and Rajni’s foundational knowledge of the company stands to play a crucial role in continuing to establish a meritocratic culture, enabling cross-functional synergies, fostering a non-hierarchical environment, and enhancing rewards and recognition programs. She built the initial people-centric culture framework of UGRO and her rejoining would bring continuity in building the entrepreneurial culture the company holds dear.

For Rajni, returning to UGRO Capital feels like coming back home. “I am excited about the shared vision of empowering the MSME ecosystem. UGRO Capital’s journey to become the largest Small Business Financing Institution is both inspiring and challenging, and I am eager to contribute to its success.”

Rajani explains that what they really seek is 3 things: (i) a challenging job (ii) good work environment and (iii) flexibility. They want their supervisors to give them the problem and the freedom to solve it. They want tougher problems. “When we go and pitch in colleges, we pitch on these lines,” reveals Anuj.

Sustaining the Uniqueness

Another objection some people have raised is that UGRO’s approach can easily be copied. Anuj responds that copying does not automatically give the benefits. Legacy thinking and legacy systems are baggage that copying simply cannot offload. He delves deeper: “Our learning over the last 4-5 years is something that anyone who comes in will have to spend that much time to learn – that cannot be shortened. The learning of implementing a machine learning platform and Data Science led underwriting for a large field force culturally is something that cannot have shortcuts. At least we have that head start.”

Shachindra was clear that the company had to start with big capital. If it starts small, then the incremental thinking will come in. “If that means we have to, we have to wait a little more to start, then it’s okay. But we will not start small. So if data science, automated underwriting and machine learning platforms are the future, then we must invest and do our best to expand on those fronts,” he reasons.

Having the Right Focus

Anuj emphasizes that from its very birth, UGRO has been MSME focused and not product-focused like many lenders are. MSMEs have a variety of funding needs and the company will offer everything which is possible for this segment. “There are so many new age companies which have come up who will offer only one product – we say we will not be product-specific, we will be target segment specific. UGRO Capital is the only MSME lender in the country today that offers all kinds of products to the MSME customer,” avers Anuj.

Thanks to the ecosystem which was developed because of account aggregation, IndiaStack 2.0, etc, UGRO was at the right place at the right time. The company’s leaders could sense that the government is very keen to get the digital ecosystem around MSME in a very big way, which further energized the company’s strategic approach.

COO Role Transformation

In most organizations, a COO is typically tasked with running the operations. But at UGRO, the COO’s task is not just running operations, but also automating them wherever feasible. For this, the CTO reports to the COO. Om Sharma, Chief Operating Officer, says that 60% of his time goes into the technology side of things, and 40% time goes into running operations. Having both roles under one hat also avoids differences that emerge between these two roles in different organizations.

Om Sharma came to UGRO Capital from AU Small Finance Bank. He joined in September 2023. Om comes from a pedigree of Boston Consulting Group, IBM, Royal Bank of Scotland, etc. He has worked on transformation projects in India, UK, Sri Lanka, Malaysia, Singapore and Latin America over a period of 20 years. Further, he is an alumnus of the distinguished Indian School of Business, Hyderabad. What did he see in a much smaller organization that he decided to come over? As Om explains, there are 2 main parts to it: the first is the sheer ambition that Shachindra shared with him, and the second is the tech culture at UGRO.

Decoding The Tech Culture

Culture needs to be understood in some depth as there is an important nuance that techies will surely understand, and that they should understand. Some techies remain techies throughout their careers, while some others transform into managers. But only a few techies transform into leaders, because opportunities for that are rather limited. Om saw this opportunity at UGRO Capital.

So, what is the difference between a tech manager and a tech leader? Om explains: “Principally, what a tech manager does is manage a set of vendors. In a financial company, if most of the tech stack is outsourced, a good tech manager will meet about 10 vendors in a typical day, and keep doing this day after day for many years. He will keep pushing the vendors to meet the evolving requirements. He will have risen to being a manager, but his creativity and engineering would have been snuffed out. On the other hand, a tech leader is much more hands-on in using his creative and engineering skills. He leads an army of techies who do tech stuff hands-on. He is also a tech strategist who ensures that the choices and decisions do not leave any gaps in architecture, technology, design, etc. And like a leader, he demonstrates results.”

Who are the tech leaders that inspire Om? He reveals a few names – Sunder Pichai, Satya Nadella, Sam Altman and Elon Musk. He goes on to give the example of Kailash Nadh, CTO at Zerodha. Om sees him as a great leader who has created a brilliant tech stack at Zerodha. “There are so many things that I would love to learn from people like him because there is a lot in common with our work. For example, a stockbroking app has to have financial reconciliation down to the last paisa, it has to have settlement, it cannot have too many blips coming into it. The principles for all these are the same across segments, and so that’s where we learn from him.”

The fact is that the massive growth and success of tech and fintech companies have shifted the goalposts for techies. Their higher aspiration is not just to get a well-paying job but to actually transform the world with their skills and creativity.

Om sees a similar opportunity at UGRO – to be a true-blood tech leader. This was deep inspiration for him.

Insourcing Gives Agility

While functionally UGRO Capital is a financial organization, at heart it is a data and technology driven organization. It has a team of about 150 people in tech and about 80 people in data analytics, while the total employee strength including all kinds of roles is about 2000. Very few financial organizations have such a high ratio of tech and data engineers, and that is why Om calls UGRO a DataTech organization.

This team has built all the applications that give a company a competitive advantage, such as Loan Origination System (LOS), Loan Management System (LMS), Co-Origination System, Credit Decision Engine, etc. Not just built, but also maintained and enhanced. Things that do not give a competitive advantage, such as payment gateway, are consciously outsourced. That has been the strategy at UGRO from the first day and it is completely aligned with its business mission.

Om explains the benefits of this strategy: “The real competitive advantage is not in functionality but in the agility to make changes. With traditional outsourcing, if we have to make a change there is a long process of estimation, negotiation, testing, implementation, etc. This can take weeks, maybe months. With our internal team that is completely hands on about the business requirements and the technology, we can do this in days. We can save weeks and months.”

UGRO recently launched a new product – electric vehicle (EV) loans. If it had gone with the traditional vendor-driven model, this might have taken 6 more months to be launched. “We started the project discussions just 2 weeks before Diwali and within a month, the team says we are ready to go live. I have gained a 5-month advantage over my competition,” smiles Om. For a company with solid growth ambitions, gaining 5 months is a big deal.

Beyond agility, having a large IT team gives the company the capability to respond to any major incident that requires an IT solution. The regulatory guidelines at Paytm Payments Bank has created a massive IT project to transfer customer accounts to other banks and to swiftly comply. A financial company with a weak IT team will find it very difficult to manage a large incident, whether the source is the regulator or markets or internal disturbances. UGRO Capital having a strong IT team is therefore a strong business continuity solution.

Strategic Tech Choices

What about all the promise of low-code and no-code? Can that deliver agility?

Om shares that these platforms are very good in terms of getting started, but where they struggle is that once the environment becomes too complex, then they become like any other platform. Things have to be changed and configured again and again, making it difficult to maintain agility. Moving from change to change creates an increasing overhead as each additional change becomes more complex and time consuming.

RPA is another tech that Om prefers to use only minimally. He explains that RPA is needed when the core technology cannot address the core problem. If there are 2 different systems and a human is doing data entry from one system to another, then an RPA is needed. If systems can talk to each other, say through APIs, then there is no need for RPA. Om prefers to fundamentally redesigning systems so that they talk to each other directly.

“The more you have legacy technology, the more you need RPA. Most of our systems are not more than 5 years old. Also, we are constantly re-architecting. So even before me, it has already been the architected once, and now when I’m coming, we are another round of re-architecting, and hence less RPA will be required as systems talk to each other via APIs,” he explains.

Om clearly shows a preference for fundamentally robust technologies, even if it means saying to some new technologies.

Attracting Talent

Another person who moved to a small organization after working in large organizations is Sunil Lotke, Chief Legal & Compliance Officer. He has worked earlier at InCred, StarAgri Finance, IIFL and Capital First. Of his 20 years of experience, 15 years have been in the financial sector. Sunil too checked with other people he knew in the industry, and when he got positive feedback, he decided to do join in. His thinking was that after having worked with a large organization and an evolved organization, joining a startup would allow him to use all his experience and apply it. He dives deeper: “I felt it is a good idea to be a part of a startup where we start from scratch and eventually when the company blossoms, you become a part of the larger organization and your efforts are also recognized that you started with a company when it was zero.”

Sunil sees good opportunity for legal and secretarial professionals to face challenging conditions and complex tasks like fund raising and acquisitions when joining a start-up or a smaller NBFC.

Sincere Compliance

The Paytm Bank episode and several other incidents earlier have showcased the importance of regulatory compliance. Sunil and his team’s key contribution is keeping UGRO aligned with the circulars that the RBI and SEBI issue. It is the compliance team that guides the business teams to implement the requirements. Sunil further adds: “At UGRO Capital, there is a strong mindset to be very committed to be on the right side of the law. Even for the smallest matter, people come to the legal and compliance team to understand the real intent behind the regulatory prescription.”

Compliance is not just practiced sincerely, but even has a structure that has been built for it. Sunil explains: “When the organization started, we had 13 directors on the very first day, even when the loan book was zero. So even when we were small, the thought process and the idea was very clear that we want to operate with high governance across the levels, irrespective of size,” reveals Sunil.

Sunil had only 2 people in his team when he joined UGRO in Aug 2019. The team has now expanded to 13 with 3 different verticals – legal, compliance and corporate secretarial.

One of the notable achievements of the legal team is the partnerships signed up with 8 public sector banks. Sunil points out that not just industry people, but even auditors would often try and understand certain aspects of how UGRO does co-lending as pioneers.

Given the high-tech approach of the company, is there a great potential for using Generative AI and large language models (LLMs) in the legal department? Sunil is pragmatic and expects it will take minimum 5 years to get some notable impact. He still sees human capabilities of reading the circulars and understanding them properly as key to compliance.

UGRO Capital targets both traditional business and new age business.

Wooing the DSAs

The company has 750 DSA relationships. There are large partners like Andromeda, Finwise and Urban Money. The fact is that there are so many lenders that keep coming and going, and so DSAs ask why they should invest their time and energy to make their agents do business for UGRO Capital. Well, the answer is very simple. The 3 things that UGRO offers are a lower turnaround time, the right products, and good service.

The DSAs still believe in UGRO as one of their better or larger partners. Amit describes UGRO as being among the top 3-4 players in the country amongst the 75 odd players. This essentially means that the products, the process, the whole philosophy of underwriting – everything has been found to be useful and fruitful to the customers and their business growth.

From the RM perspective, let’s look at an example. Imagine an RM sources 8 files a month. UGRO’s scoring system will say no to 4 of them within an hour. This means less time wasted by the RM in getting a response as compared to any other organization, where the response might take a week.

Superior Service Model

How does UGRO Capital improve its service? It has 2 models to choose from – fine dining and fast food. Fine dining offers an extensive menu, a heavy dose of personalization, but slow service. Fast food offers a very limited menu but fast and predictable service. UGRO has chosen the latter model. In this model, UGRO asks borrowers only for limited information during the application process – Aadhar information, GST information and bank details. It does not ask for income tax returns, balance sheet, profit and loss statement, collateral details, etc. This simplification model is at the core of its fast-food type service model. Why did UGRO choose this model? The answer lies in the fact that what most customers want is speed rather than luxurious service.

UGRO sees income tax returns and balance sheet as a reflection of tax optimization rather than the true picture. It has taken the philosophy that it will not collect documents where authenticity is missing.

Co-origination and co-lending accounts for 30% of the lender’s business. The partners are PSU banks and large NBFCs and banks in the CLM1 model, where the partner does the re-credit. “Where the co-lending partner insists on documents beyond our policy, we do not do co-lending. Every PSU bank in the country has accepted our philosophy and so have lenders like Poonawalla. They themselves are not able to do this because there is a lot of score-carding built in their systems. They need some vintage for our system before they adopt it themselves,” adds Amit.

New Frontiers

One business UGRO is focused on is the OEM business. It has signed up 50 OEMs and is signing up more every day. OEMs need to help their customers with funding so that their machines and equipment gets sold. Every day delay in getting funding by the buyer delays sales for the seller. Not every buyer gets funding right away, so what they prefer is to get a quick no so that they can turn to another lender for funds.

Growth Patterns

So, what is the ratio of secured to unsecured lending? 30% is unsecured risk, and the rest is secured. 45-55% is DSA business and the rest is direct, reveals Amit.

Is the growth rate for all these 4 segments, similar or different? Historically, all 4 segments have seen similar growth rates. Will the trend continue? Amit explains that the answer depends on the company’s focus of where it wants to grow and what it is investing for the same.

So, the latest focus area for the company is micro-enterprises. It is already present in 5 states and will be adding 3-4 more states, with a total of 75 branches dedicated to micro-enterprises. That will accelerate the growth on unsecured and direct lending, compared to the other two.

Retailers – A Large Opportunity

The other business that UGRO is largely focusing on is a very new age business – the retailer – which is underserved by the lenders. You will not see any major bank funding Rs50,000 to a retailer to buy stock today and then return the money after a few days. This is essentially a short-term loan where the risk is based on an understating of the business cycles.

As in the micro-enterprises business, the average ticket size and the lending period are flexible rather than being fixed by at specific months. Amit dives deeper: “Everyone is funding the large players down to the distributor level, but very few are funding the retailers. So rather than the distributor funding the retailer, it is us funding the retailer and letting the distributor focus on his core competency.”

The question naturally arises – why has retailer financing not been a prevalent product in the market? One thing Amit sees is that people were stuck to the traditional things of looking at retailer profitability. Amit thinks this does not matter because he will buy the stock and sell it in a month and repay the loan. “If we are not giving the funding, he would take it from unstructured sources, family, friends, etc. Here, he is doing it all with respect and he is doing it at a cost, which is regulated,” adds Amit.

Managing the Retail Risks

Doing this kind of lending calls for data and understanding of the sub-sectors, such as pharmacy, grocery and apparel. “The credit cycle is different for each and we’ve done that research,” says Amit, adding that this is core to the company’s scoring model.

This is all about being much more aligned with business realities and cash flows as opposed to the standard financial way of looking at things. In the market, distributor financing is a 90-day standard product, whereas in reality, each borrower needs funds for different periods of time.

Amit explains that this business is not the same as micro-finance. We do not do micro-finance because there is no data of such borrowers. UGRO Capital gives loans only when there is data.

Amit clarifies that UGRO finances only physical retailers, not online retailers. For a physical retailer of say bedsheets or groceries or other products, the sales are predictable, but the same is not the case for an online retailer.

UGRO does not fund the retailer to buy anything, it is only to buy specific stock. The way this works is that UGRO works with the distributor supplying that stock. UGRO also comes to know the history and vintage of the retailer from the distributor.

Supply Chain

Not so long ago, Amit and team met the Patanjali group, which has 5 lakh retailers. Their business relies on funding the last mile, and from there the money flows upwards. The Patanjali team was thrilled with the retailer financing model that UGRO Capital offered and took it on. “Likewise, we have partnered with Skechers, Puma, Prestige, TTK, and many others,” beams Amit.

So, UGRO now has 3 models. One is directly to the distributor, without any reference to the OEM. UGRO has about 1000 distributors on its book overall. The next is with OEMs like Patanjali. Third, there are some platforms which have distributors on board which make the sales entries every day.

That platform is a digitization of inventory from the anchor to the distributor, and the distributor has the retailer’s name because he’s supplying to their retailer.

UGRO’s tech team is building the technology to reduce ticket sizes, and that will open new doors; going from an average of Rs20 lakh ticket size to a Rs1 lakh ticket size opens a whole lot of new doors.


Great stories have two things in common – a person(s) with a dream or passion, and a really big problem to be tackled. Great missions also have a few supporters and lots of detractors. How this person(s) combats all odds to achieve his/her/their mission is what makes the story heart-warming. Will the creation of a formidable MSME lending institution in India be one such story? All the facts as well as my intuition says yes – this story will be a legend.

India is now in a phase where so many things thought to be impossible, are becoming a reality. I hope to see and meet and write about many passionate and visionary entrepreneurs who solve our big problems and give us the pride of being a great nation.

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