In an exclusive interview with SME Times, KV Srinivasan, Director & Chief Executive Officer, Profectus Capital, said that lack of credible financials and poor tax compliance by many SMEs make it difficult for banks and NBFCs to assess the credit needs and repayment capacity of the borrowers.

Excerpts from the interview…

Please tell our readers about Profectus Capital.
KV Srinivasan: Profectus Capital is an specialised SME-focused non-banking finance company, registered with the Reserve Bank of India. Our objective is to provide finance to small and medium businesses and to partner them in their progress. The word "Profectus" means Progress in Latin and therefore our name comes from this objective. We have presence today in five cities – Mumbai, Pune, Ahmedabad, Hyderabad and Coimbatore and in the next few months would expand to Chennai, Bangalore, Rajkot and Surat. We plan to cover the northern and eastern parts of the country by March 2020.

Our management team has been a pioneer in SME financing in the past assignment and we understand the needs and constraints of SMEs. Our financial offering takes into account these and we have developed flexible and customer-friendly products to suit the needs of the SME sector.

Profectus Capital is backed by Actis, a UK-based private equity fund with over USD 13 billion of assets under management. Actis is an offshoot of Commonwealth Development Fund, which was promoted by the UK Government in the 1940’s and has wide interests in the emerging markets of Asia, Africa and Latin America. Actis was an early-stage investor in Axis Bank (earlier called UTI Bank) and IDFC. Actis has committed equity support of USD 220 million to Profectus Capital.

What are the services/packages you offer to SME customers?
KV Srinivasan: Profectus Capital offers loans to the manufacturing sector for business expansion, putting up of additional machinery/facilities, upgradation of technology and working capital. Our initial focus is be on sectors such as pharmaceuticals, engineering, food, chemicals and plastics, auto components etc., but we are expanding the coverage of industries that we finance. We also provide funds to schools, hospitals and diagnostic chains for expansion, purchase of additional facilities, upgradation of equipment etc. We have special products to cater to the needs of the huge supply-chain of distributors and merchants across various sectors.

Our offerings are tailor-made to suit specific cash flow requirements of each industry. We have created a strong and state-of-the-art technology infrastructure to ensure quick credit appraisal and better customer experience. Details of our products are available on our website www.profectuscapital.com

What is the current scenario of SME financing in India?
KV Srinivasan: SME sector is a very critical contributor to India's economic progress and is the focus of several Govt initiatives such as Make in India. However, the RBI estimates that less than 10% of India’s MSMEs have access to formal means of financing. The World Bank estimates that the unfulfilled demand for loans of the MSME sector is close to Rs 2 trillion. Therefore potential market available is very large.

The critical limiting factors have been the lack of credible financials and poor tax compliance by many SMEs, which make it difficult for banks and NBFCs to assess the credit needs and repayment capacity of the borrowers. At Profectus Capital, we have developed special tools and techniques to overcome some of these difficulties so that we can offer the right facility to the SMEs.

Please share your views on NBFCs and their strength in changing the credit situation for Indian SMEs?
KV Srinivasan: NBFCs have always played the role of providing the last-mile connectivity when it comes to providing finance to MSMEs. A very large part of the financing needs of the transport and contracting sectors is provided by NBFCs in spite of presence of banks across the country. NBFCs have been proactive in understanding and in maintaining close relationship with customers and have been very successful in providing financial inclusion to many under-served sectors. In the past few years, a very large part of India’s credit growth has come from the NBFCs.

Do you think there is a huge gap in bank credit that can be filled by NBFCs?
KV Srinivasan: As I said earlier, the estimated credit gap for the MSME sector is huge. In spite of decades of nationalisation, banks have not been able to provide assistance to the needy sectors fully primarily due to their business model. NBFCs have demonstrated their ability to fill this gap and have been growing from strength to strength.

What is your opinion about RBI- Centre conflict at present?
KV Srinivasan: I look at it as part of normal process of discussion in a healthy democracy. Beyond this it would be inappropriate for me to comment since one does not have the correct information beyond what is available from the newspapers.

We would like to hear about Profectus Capital's future plans.
KV Srinivasan: Profectus Capital would over the next 3-5 years plans to grow into one of India’s most respected and profitable SME-specialist lending institutions, guided by strong ethical standards. We would have a pan-India presence with industry special offerings and strong customer loyalty. Our aim is to achieve a book size of Rs 10,000 crores in the next five years.