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Last updated: 17 Feb, 2020  

Neogrowth.9thmb.jpg Lack of formal financing a challenge for MSMEs: NeoGrowth founder

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SME Times News Bureau | 17 Feb, 2020

Lack of formal financing and working capital has been the biggest bottleneck in the growth of the MSME sector, said Founder and MD of NeoGrowth Piyush Khaitan, in an email interview with SME Times.

Please tell our readers about NeoGrowth and its entrepreneurial journey?

Piyush Khaitan: Belonging to an entrepreneurial family, my brother, Dhruv Khaitan, and I had founded a digital payments processing firm, Venture Infotek in the mid-1990s. Venture Infotek had soon become India’s largest transaction processing company and operated merchant acquiring, card processing, loyalty programs and government benefits programs on behalf of Indian banks and large retailers. It is during these building years, when working closely with retailers, that we realized their pain points in terms of accessing finance. That was the moment of truth for us and we realised that there is a huge credit gap that can be bridged by leveraging our learnings in digital payments and transactions. This led us to finding NeoGrowth which is an innovative lending model operating at the convergence of three ecosystems - lending, urban retail and digital payments.

Our product design is centred around the business model of the retailers as card swipes give a good sense of the business potential, seasonality changes and customer footfalls for underwriting. Another differentiating factor is that this product has a daily recovery model and is digitally driven. Our product design is centred around the business model of the retailers as card swipes give a good sense of the business potential, seasonality changes and customer footfalls for underwriting. Another differentiating factor is that this product has a daily recovery model and is digitally driven. One of the core objectives of NeoGrowth is to have a positive social impact on the financial lives of small and medium business merchants across India, more than 50% of whom are creditworthy but until now have been excluded from accessing loans based on traditional underwriting methods.

What are the product/service it offers?

Piyush Khaitan: NeoGrowth Credit Pvt. Ltd is a Systemically Important, Non-Deposit taking NBFC and a pioneer in SME lending based on the underwriting of digital payments data. We provide finance to small business owners to drive business growth that matches their ambitions. Our hassle-free loans are powered by technology innovations and leverage the digital payments ecosystem. We provide financing to retailers, restaurants, apparel shops, kirana stores, petrol pumps, groceries, pharmacies and other MSMEs with flexible repayment options and customized products addressing multiple business needs. Our financing not only helps our customers grow but also drives financial inclusion making a positive social impact.

What is the overall credit scenario in the country?

Piyush Khaitan: The MSMEs form the backbone of the Indian economy by not only employing more than 50 million people but also contributing almost 30% of the GDP. And about 60% of these businesses are from rural India. However, a lack of formal financing for their assets and working capital has been the biggest bottleneck in the growth of these sectors. As per the IFC Report 2018, the overall finance demand by micro, small and medium enterprises is estimated to be INR 87.7 lakh crores of which INR 69.3 lakh crores is the debt requirement. Out of this, a major chunk of the requirement accrues in the SMB (small and medium business) segment. However, 40% of this demand is estimated to be served by formal credit. Out of this demand, 25% is through personal proprietor rather than business loans which demonstrates the shortcomings of the current lending process. This presents a huge opportunity for new age digital lenders like NeoGrowth.

What are the additional burden on SME as regards to financing?

Piyush Khaitan: Moreover, MSMEs often do not have property or collateral to mortgage. It is seen that the major challenge faced by MSMEs is lack of (since first time borrowers) or have insufficient credit history. Many a times, small and medium businesses do not have proper formal documentation of their businesses even though the business traction is high. In addition, long approval and disbursal periods are especially challenging for small businesses, and only few traditional financial service providers have cost structures that allow them to make small loans that are appropriate for micro and small enterprises. This constrains MSME growth since firms must either make do with low levels of working capital or rely on informal financing, which is expensive, or supply chain financing, which limits their vendor choice and bargaining power. This is where NeoGrowth addresses the challenge by underwriting based on the digital payments data which gives a good measure of the intensity of business throughput as well repayment through POS machines itself allows us to mitigate risk. Also, with minimal documentation and customer centric product design, NeoGrowth provides loan approvals and disbursals quickly.

How can NBFCs can fill the gap left open by traditional banking?

Piyush Khaitan: As pointed out earlier, the challenges faced by MSMEs in accessing formal credit is being addressed by a host of NBFCs, both traditional and digital. Digital lenders, in partnership with traditional lenders, are solving the major challenges in providing credit through managed cost levers at each step of value chain. India’s API infrastructure also now enables lenders to easily leverage alternate sources of data for faster and better underwriting. This is accelerated by the continuous thrust of measures by the Government on easing the payments infrastructure network thereby enabling a change in payments behaviour and moving the country towards a digital economy. This growing & easily available digital data, combined with GST returns data and payments data, has the potential to unlock the underserved MSME segment.

What steps do you suggest to govt to address the credit crisis for MSMEs?

Piyush Khaitan: Acknowledging the role of NBFCs in sustaining consumption demand and capital formation in SMEs, the Govt. has announced several timely measures such as one time six months credit guarantee scheme to PSU banks to buy high-rated pooled assets from NBFCs to provide the much needed liquidity, bold tax rate cuts in many forms, liquidity infusion of additional 20K crores to HFCs and initiative to increase GDP contribution of MSME to 50% of GDP. Apart from this, the Government should also look at providing quality infrastructure and technology which are often core problems for SMEs and MSMEs.

Please share about your future plans.

Piyush Khaitan: At NeoGrowth, we have set aggressive targets for ourselves going forward. Presently, we have offices in top 21 cities of the country, where we visualize a remarkable growth in acceptance of digital payments. We will continue with our expansion plans into these markets and keep innovating to come up with better solutions to help the SME segment in best possible manner. In the next 5 years we aim to cross Rs 7,000 Cr in AUM; in other words, build a billion-dollar balance sheet. Our key objective has always been to create a strong positive social impact on the MSME sector, and we shall continue focusing on the same.

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