In an exclusive interview with SME Times, Sanjeev Goel, Managing Director, Intec Capital Limited said that they provide loans to Small and Medium Enterprises (SMEs) for purchasing machinery in a very short span of time, which is not possible for big nationalised and private banks in India.

Excerpts of the interview...

What kind of benefits do you provide to the Small and Medium Enterprises (SMEs) in raising finance?
Sanjeev Goel: Back in 1990s, I realized that fund raising is the biggest challenge faced by the SMEs in India apart from other challenges. That prompted me to do something about the situation and contribute to the SME sector by setting up Intec, a company exclusively engaged in machinery loans to the sector.  My first priority was to devise ways in which small and medium entrepreneurs could get fast loans for purchasing machineries. Second was to ensure that the SME gets the financial credit within a short period as in business world, timing is crucial, and if you fail to get the required money to get the job done on time, someone else will.

SMEs are typically characterized by a lack of collateral.  In case of debt financing, lenders typically request collateral to mitigate the associated risks. The lack of collateral is probably the most widely cited obstacle encountered by SMEs in accessing finance.  In our endeavor to serve the SMEs, we, hence strategized loans without taking real estate as collateral. We only hypothecate the machineries against which the loans are disbursed.

Intec also finances the needs of first generation maverick entrepreneurs and helps them fulfill their dreams by financing as low as Rs 5 Lacs.

We have been primarily focusing on sectors such as Auto and Engineering, Printing and Packaging, Plastic and Injection molding. We are also looking fulfilling machinery finance requirements of Healthcare, Medical and Pharmaceutical sector along with the food processing sector this year.

We are associated with the leading machine manufacturers of all these sectors and we fund the machinery purchased by SME clients. The market for refurbished machineries is also substantial in India and to tap the potential of this segment, we also finance the pre-owned machineries for the SME clients.

Since we understand the DNA of SME Customers, we do not go for the evaluation of the balance sheet in a traditional way.  We look beyond the other things which are not reflected in the balance sheet. We basically see his experience in a particular business, education, residence stability, past and present cash flows, repayment track records & investment in business. On that basis, we are able to fund all his machinery requirements. We normally take 25 percent as the margin money and the machineries are the only collateral in that case. For instance, suppose the machine is costing to be Rs. 100, so he (the customer) is supposed to pay Rs 25 as margin money and rest Rs 75 will be the loan given to him.

Also, we have a credit delivery arrangement with SIDBI. This channel partnership with SIDBI provides economical financial assistance and subsidy to SME customers of Intec Capital Limited. Under CDA scheme, the company sources the proposal in compliance with all due diligence and SIDBI disburses the loan directly to the client. With this association, the MSME customers are entitled for a subsidy of 15% of the machine purchase cost under a Credit Linked Capital Subsidy Scheme (CLCSS).

How do you get funds to provide finance to your clients?
Sanjeev Goel: In the business of financing small and medium enterprises, success is derived from an ability to mobilize funds at the lowest cost. Intec is focused on procuring low-cost funds through short term and long term financial instruments comprising cash credit, term loans, letters of credit, credit delivery arrangements and direct assignment. We are working very closely with various nationalized banks and renowned financial institutions for procurement of funds.  We are also looking at reducing the cost of funds by adding more banks to our consortium and raising funds from international sources.

What kind of disbursement did you provide in the last financial year?
Sanjeev Goel: We have provided around Rs. 556 crore in the last financial year.

What kind of growth are you expecting this year?
Sanjeev Goel: There are certain sectors which are defensive sectors and there are certain sectors which are getting affected by the slowdown. So, if you talk about the printing and packaging sector that is not getting affected by the slowdown. Similarly, pharmaceutical sector is not getting affected by the slowdown. In fact, the plastic segment to a certain extend is also not getting affected. But if you talk about the auto sector, it is definitely getting affected. There is a slowdown in the passenger car segment. The machinery requirement in the auto sector has come down by 10 percent from 20 percent for different manufacturers across industries.

But at Intec capital, we are expecting to grow by 40-50 percent in this year. Last year, we grew at about 40 percent.

Are you catering and disbursing loan for imported machines as well?
Sanjeev Goel:Yes, We are catering to the machinery requirements of our SME clients even for the imported machines. If they want to import machines, we help them for importing those machines and finance them. Some of the SME clients are bankable and they have their working capital limit. For them probably it is easier to raise finances. There are large number of SMEs who do not have the working capital limits or any kind of term loans with the banks. That is where we help them to raise finance for imported machineries. We can help import machineries against letter of credit and help them in facilitating the buyer credit agreement.

We know that international interest rates are at 3-4 percent. SMEs in India are facing tremendous problems due to the high interest rates. What is your take on this?
Sanjeev Goel: Interest rates are determined by a number of factors such as inflation level, economic conditions and currency levels. In case of developed economies, the inflation rate hovers around 1 to 1.5 percent. Hence, those economies are able to keep their rates at considerably lower levels. Since our inflation rates are higher, our interest rates are also high in comparison to other economies.

What kind of interests are you charging to your clients?
Sanjeev Goel: We have been charging very competitive interest rates in the NBFC space.  However, as mentioned earlier, we have been working on further reducing the cost of funds from various sources and would definitely pass on the benefits of reducing cost to our customers in the times to come.

Do you have competition with the banks?
Sanjeev Goel: Indian financial space is very competitive and borrowers these days compare various other factors apart from the cost of funds. At Intec, a SME client gets a dedicated relationship manager to provide customized financial solutions to their requirements.   We also understand the importance of having a timely access to the funds for SMEs  and that delays may lead to missed opportunities. This precisely is the reason why the Company grants in-principle approval of credit within 72 hours from the date of meeting the borrowers —the fastest and the most hassle-free credit appraisal turnaround process guaranteed by any SME financing company. Analysts at Intec possess in-depth understanding of both SME's operations and the various sectors. This knowledge helps the analysts guide SMEs with valuable financing advice that is in their best interest, whether they are trying to launch new or expand their existing operations.

How many SME clients have you served till now?
Sanjeev Goel: In a year, we serve about 1100-1200 new SME clients. This number will go up every year because    the number of our retail loans is consistently growing every year. We are looking at more disbursement in the category of Rs. 5 lakh and Rs. 50 lakh to maintain a robust portfolio

Are you looking at some other sectors?
Sanjeev Goel: As discussed earlier, we are looking at four or five sectors which are our focused sectors. Besides that, we will be catering to IT services and infrastructure, FMCG, and educational institutions.

How do you observe the growth of Indian economy at the moment?
Sanjeev Goel: SMEs are going to play a pivotal role   in the growth of the country. If the financial inclusion is not there what will happen is that there will be a lot of differences in haves and have-nots. For the industrial development of the country, these SMEs have to be supported. The essentials basically are: One, the infrastructure facility that SMEs should be having, is missing. Second, the kind of labour that they require should be available to them. Third, technology training, a lot of training programs should be organized in order to get them connected with the latest happenings in the industry. Finally, providing finance to SME clients. These four or five things if we are able to address then it will help SMEs to grow and also boost the GDP growth of the country.

What are your business plans for this year?
Sanjeev Goel: Intec has 12 pan-India branches covering 125 SME clusters with the objective to be close to clusters of high SME activity like Delhi- NCR, Mumbai, Pune, Ahmedabad, Indore, Ludhiana, Chandigarh, Jalandhar, Coimbatore and Chennai. We are planning to expand from 12 locations last year to 23 locations this year to reach to over 158 SME clusters of the country. This year we are looking at adding two more sectors: one is pharmaceutical and the other is food processing sector. Every year, we want to add two or three sectors where we can get closer to SME clients. We would be tying up with all the leading  manufacturers in  those industries in order to provide  funds to all SME clients for the purchase of machines.

(Namrata Kath Hazarika can be contacted at namratakh@tradeindia.com)