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Last updated: 16 Mar, 2019  

Vivek.9.Thmb.jpg Banks should be encouraged to offer collateral free loans to SMEs: Satya MicroCapital CEO

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SME Times News Bureau | 15 Mar, 2019

In an exclusive interview with SME Times, Satya MicroCapital CEO & MD Vivek Tiwari said that Indian banks should be encouraged to give collateral free loans to small and medium enterprises (SMEs).

Excerpts of the interview …

Please tell our readers about Satya MicroCapital and its entrepreneurial journey?

Vivek Tiwari: SATYA started its microfinance operation from Sikandrabad Branch, Bulandshar District of Uttar Pradesh and the first token disbursement was done in November 2016. SATYA utilized demonetization as an opportunity to rework on the business strategy through cashless transactions.

We have adopted the “LLG (LIMITED LIABILITY GROUP)” with adequate use of technology and new adaptations. JLGs of SATYA means implementations of Joint Liability of group members which exists up to 10 instalments in Bi-Weekly collections. The Company believes in the ideology to bring social touch and high technology in the Indian microfinance industry. The JLG lending operation mainly focuses on a woman (in case of SATYA, her husband acts as co-borrower) through a credit product that allows her to start a new business or enhance her existing business as well. SATYA provides prompt, convenient and affordable collateral-free credit to people at the bottom of the pyramid through a strong credit assessment and centralized approval.

What are the services you offer? Are they good for SMEs?

Vivek Tiwari: We offer loans/ financial support under 3 models:

  1. Joint Lending Model (Can be availed only by women entrepreneurs
  2. Individual Lending Models (Personal loans that can be availed by all)
  3. Consumer Durable Loan (can be availed by both females and males)

Yes, We act as a catalyst for industry and SME growth.

Microfinance is a financial resource for low-income individuals and small medium enterprises for supplying loans, savings and other financial services to under-privileged people.

Access to finance is the major problem faced by micro-enterprises, to whom commercial banks have traditionally concentrated their lending mainly to large formal enterprises which have the expertise of doing business and possess collateral. They miss out small enterprises as they lack expertise and riskier investment. Thus it is observed lack of proper access to finance as one of the factors hindering the SMEs growth. So to facilitate financing the policies of microfinance institutions have been framed.

Microfinance institution emerged as a noble substitute for informal credit and an effective instrument for providing funds, financial help for the growth of SME’s. Easy accessibility of services offered by microfinance institutions has a direct impact on the sales, profit and physical assets development of SME’s.

What upper-hand NBFCs are enjoying over traditional banking?

Vivek Tiwari:

· Complete Process Automation using Advanced Technology and Mapping all processes and capturing the information required to build control mechanisms:

· Complete Data Digitization for Complete Business Process Better Quality Client Acquisition

· Micro entrepreneur Loans

· Dedupe Check of Client

·  Integrated Online Credit Bureau Check

· Online Real-time Integrated Credit Bureau Check

· Satya’s Maukhik Song

· Meeting-in-Charge Rotational Model for Sharing of Responsibility

· Strong Democratic behavior of the group

· Strong Multi-layered Credit Appraisal Process

· 100% Cashless Disbursement

· Distribution of Floor Mat for Centre Meetings

· Cashless Collection

· Sharing Information with Clients based on the Specific Event using Mobile SMS Services

· Launch of Interactive Voice Response (IVR)

To what extent it is true that Indian NBFC sector is facing lack of funds these days?

Vivek Tiwari: India has been witnessing a huge surge in consumer leverage in recent years and these non-bank intermediaries have been growing this lending faster than banks.

Some fund houses may have started cutting bond holdings, particularly from NBFCs, and are seeking to sit on cash, because of market uncertainty and apprehending a possible surge in redemptions, But the financial performance of NBFCs, including profitability, asset quality and capital adequacy has improved during 2017-18 as they weathered the transient effects of demonetization and GST implementation.

What suggestions do you offer to reform the banking sector so that it can better serve credit needs of SMEs?

Vivek Tiwari: Nearly all banks prefer to lend to MSMEs only against collateral. Current trend is that majority of lending to MSME sector is against property mortgaged by promoters or owners or partners of MSME unit to the bank. A significantly large chunk of MSME loans between Rs. 30 million to Rs 150 million are actually nothing but Loan Against Property (LAP). This trend is actually because of the risk framework adopted by Banks to build secured loan book which leads them to lend only against collateral.

Banks should be encouraged to offer collateral free loans, wherein Credit Guarantee Fund Trust Scheme for Micro and Small Industries (CGTMSE) offers credit guarantee cover offers to Member Lending Institutions (MLIs), up to 75% of amount of default. This is a boon for micro units and start-ups, who can raise initial funding for capex without having to worry about collateral. 

What is your about your view on the Interim Budget as far as MSMEs, Indian industry and NBFC sector are concerned.

Vivek Tiwari: MUDRA Yojana has done a commendable work in providing credit to relatively smaller and aspiring entrepreneurs in India. We understand that the welfare schemes cannot be completely avoided as this is an election year, while the government also needs to stick to its Fiscal Deficit targets. So, the capacity of MUDRA couldn't be increased as was being anticipated by the industry. However, it is the need of the hour to generate employment and provide a favorable atmosphere to the MSME sector. We hope that this area, alongside the implementation, will be looked into when the government announces its full budget later this year.

Please tell us about future plans of Satya MicroCapital. 

Vivek Tiwari: We want to open our branches in all the states where we don’t have existence till date majorly embarking our presence in the Southern part of country.

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