Home / Companies / People /  Aye Finance raises debt funding from Swiss investor BlueOrchard

Bengaluru: Fintech MSME lender Aye Finance has raised 107 crore as debt funding from Switzerland-based impact investor, BlueOrchard.

Backed by CapitalG, the growth equity investment fund of Google's parent company Alphabet Inc, among others, Aye Finance lends to micro, small and medium enterprises (MSME) in India. Sanjay Sharma, managing director and founder of Aye Finance, said the company will use the latest investment primarily to increase their on-lending to customers.

“We are lending to micro-enterprises and this is on our own books…We have done that in earlier rounds also, where we have raised money and we have not passed it onto a bank or intermediate organisation that can buy those loans," he said, over the phone. “This money will also be for lending from our own balance sheet," he said.

In a statement, the company said it will use these funds to extend affordable and customised credit solutions to the base of the pyramid businesses of India. Since its inception in 2014, the company says it has provided 2,700 crore worth of credit to over 1,96,000 grassroots businesses. It has an active customer base of over 1,30,000 and Assets Under Management (AUM) of 1,500 crore. This year, the company expanded its reach to micro enterprises in 173 cities in 18 Indian states, the statement said.

Sharma added that they lend to small businesses in more than 100 clusters, in segments such as manufacturing, trading and service clusters (restaurants, garages, etc), among others.

“This is the sixth round of funds we have received from BlueOrchard and I believe this demonstrates their comfort with and commitment to our business. Lending to micro enterprises has been a less travelled path for banks and financial companies and hence it is satisfying to have established an innovative paradigm of our lending approach. The Aye team has demonstrated the robustness of our cluster-based lending approach having enabled the inclusion of close to 2 lakh micro enterprises using this approach," Sharma said, in the statement.

Last month, Aye Finance had announced it had raised 125 crore from the Dutch Development Bank FMO. Apart from FMO and BlueOrchard, in the current year, Aye has raised over 1,140 crore in debt and equity from companies including CapitalG, Falcon Edge, HDFC, ICICI and DCB Bank.

BlueOrchard was founded in 2001, by initiative of the UN, as the world’s first commercial manager of microfinance debt investments. Since May 2017, BlueOrchard has invested a total of 290 crore in Aye Finance.

Normunds Mizis, Chief Credit Officer at BlueOrchard, said, “India is an important market for BlueOrchard, and one that we have been actively investing in for almost 20 years. We have been working with Aye Finance since 2017. This additional funding is testament to our conviction in the company’s mission to bridge the gap between loans offered by MFIs and those available from commercial banks, offering MSMEs across India access to attractive credit solutions."

There are over 63 million MSMEs in India, engaged in a variety of businesses.

Sanchit Vir Gogia, chief analyst and chief executive officer of Greyhound Research said that a recent study by his firm had revealed that the dearth of finance for informal sectors in India, particularly MSMEs, was the biggest challenge they face. "Typically, this section of enterprises aren't very rich on assets and don't have very significant profits and losses (P&Ls). They also may not be in the kinds of sectors where there would be inventories of goods," he said.

These businesses have to look at non-traditional sources of money, that include non-banking financial companies (NBFCs), he added. However, with NBFCs, the cost of finance is higher, he added. "The lending rates have always been a minimum of 1.5X times compared to the banking rates. This also means the credit available to MSMEs is more expensive than it should be," he added.

Given the high risk of nature of lending to MSMEs, he added, the chances of NPAs will be higher. "MSMEs in different belts of the country have different natures of cyclical, seasonal behaviours. A balancing act is required...probably balancing different seasons and different sorts of companies, across the nation. And (lending firms) have to cherry-pick sectors so that everybody isn't focused on just one sector," he said.

Sharma pointed out that a majority of these enterprises are in the unorganized sector. "Their loan requirement is typically 1-2 lakh. It is very important to have a good model and good process to underwrite these customers," he said.

"We (Aye Finance) have NPAs of below 2%, and that is proof that our underwriting process has been effective. We use a bit of business-related alternate data. If someone does not have a balance sheet, P&L, we can always use the knowledge of the industry cluster and available information about inventory, bills, etc to reconstruct the cash flow," Sharma added.

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