How do you distinguish between the Medium, Small and Micro sized businesses as far as the Indian business environment is concerned?
While there is a regulatory definition based on annual turnover and investment in plant and machinery, from our perspective, each customer has a unique need, and we try to understand that need finely. A local light engineering workshop trying to get into the fold of formal credit to buy a new machine, a small eating joint trying to expand its footprint, a supplier to a large corporate trying to manage working capital better – there are businesses in various stages and different scale of operations, with different needs – that is the distinction we want to acknowledge and cater to when we serve our customers. Of course, economic contribution of the small segment is the largest – and credit penetration the lowest; therefore, it is our mission to solve the unsolved credit needs of the small business sector.
What is the overall picture of the India MSMEs after almost one year of slow-going because of COVID – 19 pandemic?
Decline in the number of Covid cases and the availability of the much needed vaccination has brought in immense positivity. From a regulatory or government standpoint – timely, well thought out and excellent relief measures have already been rolled out in terms of payment moratoriums, asset classification, credit guarantee and liquidity infusion. Economic growth offshoots beckon and probably the year 2020 will look like a blip in a long-term growth story.
However, there has been some lasting effects also. Firstly – most sectors have been impacted. For example – for electrical equipment: weak domestic demand led by delay in new energy projects and slowdown in real estate has led to a decline in revenue. Some businesses, particularly businesses without having liquidity or savings to tide through the crisis, have been pushed to the brink of shutting down. Secondly – digital habits or amenability to transact digitally has advanced rapidly during the pandemic. A very simple example – two years back not every borrower was equally willing to provide GST returns through OTP route, but now it’s fast becoming the norm and at U GRO Capital, we are back at pre Covid levels of disbursement.
Do you think mere pumping in capital will recuperate the lost health of the Indian MSMEs?
The upcoming budget is an opportunity to give MSMEs a leg-up in the New Year – so that they can rebuild and grow from the crisis of 2020. One can expect certain key measures from the budget this year that will aid in ameliorating liquidity to MSMEs and spurring on their recovery. The crucial challenge in the market that needs to be addressed, is not the availability of credit, but rather the risk appetite for lenders, who are understandably concerned about being saddled with loan defaults.
With that in mind, the best way forward would be for the government to encourage lending. This could be done by bringing the existing Credit Guarantee Scheme in line with the Emergency Credit Line Guarantee Scheme (ECLGS), so it acts as a First Loss cover for MSME financing without any restrictions linked to premiums. By aligning the two schemes, the government would be able to incentivise more lending to the sector. The government could bear the cost of the premiums for loans originating in FY21. This modification would push lenders to be more generous with MSMEs, while also protecting them from potential risks.
A primary addressable point is to ensure that there is enough liquidity in the system for NBFCs, so that they can support MSMEs. One hopes for a dedicated institutional framework providing a liability to the NBFCs is the need of the hour.
Would you like to focus on your ‘statistical predictive modelling’ to assess the growth potential of the MSMEs?
Underwriting of an SME borrower is a combination of predicting the probability of default and estimating the future earnings to understand how much loan obligations will he be able to service. In both situations, statistical predictive modelling is applicable.
As a specific example, U GRO Capitals’ in-house analytics model generates over 25,000 potential parameters combining a typical bank statement and the credit bureau report. To ascertain which of these are critical and by how much weightage – is not feasible for human to evaluate in few minutes. As a result, conventional policy always falls back on few intuitive known elements. U GRO Capital’s work in this area proves that the most effective combination of parameters are best found by an algorithm. We are making progress in development of curated analytical models that will improve both the decision framework as well the delivery mechanism in days to come.
What kind of electrical equipment manufacturers and component makers will benefit from your services?
We lend to specific sectors and subsectors, which are shortlisted based on deep research in risk and growth potential. Particularly in Electrical Equipment segment, we are focused on fans and lighting, cables, transformers and switchgear and various other electrical parts such as conductors and insulators, circuit breakers, control gears, press buttons, energy meters, capacitors etc. In recent times, we have expanded our coverage to newer allied subsectors increasing our coverage to 50+ subsectors within Electrical Equipments.
Are you a hand-holding type business enabler?
There are different models. As a lender, our job is to enable business by providing capital. Our assessment is limited to the context of lending.
We do make an effort to contribute to the community and to the cause of sustainability or inclusion. About a year back, we launched ‘Narayani’ – a new product for all SME enterprises that are owned and managed by female entrepreneurs, offering loans up to 50 lakhs at lower interest rates.
Recently, U GRO Capital has partnered with Wadhwani Advantage, a not-for-profit firm with footprint across 15 countries, which works towards development of SMEs across sectors and geographies. As a part of this initiative, we will reach out to all customers with objective to help them manage the current crisis situation and take their businesses to greater heights.
Please tell me in brief about your funding programme for the small electrical equipment manufacturers and component makers.
We offer secured term loans up to 5 Cr and unsecured term loans up to 50 lakhs. Regarding financial assessment, customers can provide either P&L & Balance Sheet or their Bank Statement or their GST return reports – through our award-winning digital onboarding platform that can provide an in-principle decision within 60 minutes. We also have our Supply Chain Finance solutions to cater to the segment.
What is your Unique Sales Proposition (USP)?
U GRO Capital combines the traditional wisdom of credit assessment with the power of data and technology – we position ourselves in the sweet spot between ‘fintech’ and ‘fintouch’. We are not developed on the back of specialization in terms of product or geography but have still created a completely digital delivery mechanism – which will help us scale up faster in days to come.