How this NBFC enables financial inclusion by lending to micro-businesses
Two seasoned bankers with over 25 years of experience felt that the country’s existing banking infrastructure was not reaching those who really needed credit and decided to take the business route to fill this void.
To provide credit to those parts of society who are normally not eligible for bank credit, Aseem Dhru and Mahesh Dayani Founded SBFC finance, a non-bank financial firm (NBFC) in September 2017.
“Banks, both public and private, serve a segment of customers who have the required creditworthiness and steady income and do not typically serve thin file customers. For incremental new borrowers in emerging cities, the loan from the organized lenders is not suitable, ”says Aseem, who previously worked with HDFC Bank.
The diversity of the country itself creates different types of borrowers, but the financial institutions have not been able to build the infrastructure or have the expertise to deal with this segment as they typically do not have conventional creditworthiness information.
“In India there are 65 million small businesses across the country, and no more than 8-9 percent of them have some form of organized funding. They borrow mostly from unorganized sources or from friends and family or trade credits, and it all comes at a high price, ”says Mahesh, who also has 25 years of banking experience at Kotak Mahindra Bank.
The startup wants to replace this disorganized borrowing with organized funding at affordable rates and believes this loophole is a great opportunity.
SBFC Finance offers a mix of secured and unsecured loans. These include micro-business secured loans to meet working capital and fixed-term loan needs. These are sent to MSMEs and independent laypeople with securities.
The NBFC also offers Loans for gold and also small personal loans, that are unsecured. There are also business and professional loans that are unsecured and short-term in nature.
“Our loans help customers start businesses, open space, hire more people, upgrade equipment, develop products, and do the other things that are necessary for growth and success,” Mahesh said.
In addition, the startup also offers a full range of specialist credit management services that help institutional lenders manage all aspects of loan servicing, including customer relationships, collections, payments, porting and data storage.
It manages LMS for institutions like State Bank of India, IndusInd Bank, Avenue Capital, Nippon AMC, SSG and Dewan Housing Finance Corporation (DHFL).
Says Aseem, “This innovative offering boosts our fee income with no risk to our books and strengthens our position as a niche provider.”
The services and products of SBFC Finance are provided via an omnichannel model, which is a combination of branch and digital channels.
Aseem said the direct connection and local presence through a hub-and-spoke model provides valuable customer insights into these underserved markets.
Today, SBFC Finance is present in 17 states and 100 cities and provides loans at a nominal rate with an emphasis on getting the right loan to the right customers.
“We have overcome language barriers and ownership issues and built a robust credit rule engine that leads to profitability on the unit economy. Once you get it right at the start of the trip, it will keep snowing, ”says Aseem.
SBFC Finance currently has a loan book of approximately Rs 3,700 billion and is expected to generate net income of Rs 100 billion for FY21. It pays out more than Rs 100 crore monthly.
“Our prudent strategies and focus on profitable growth have helped strengthen our profitability ratio. From growth capital to overall profitability and asset quality, we have a solid financial position, ”says Mahesh.
SBFC Finance is backed by Singapore-based Clermont Group and Arpwood with a capital injection of Rs.845 billion who have been with NBFC since its inception. It is also capitalized at almost Rs 1,000 crore.
Small business finance has its own Documentation challenges, unpredictable cash flows, and so on. “At SBFC we have developed a robust and scalable business model to meet these challenges and meet the growing financial appetites of these customers,” says Aseem.
He goes on to say that SBFC Finance’s extensive presence with in-depth local knowledge and relationships with borrowers has helped bring more people into the formal realm of banking.
There are also other established NBFCs like Bajaj Finance and Shriram Finance that are in a similar segment, and there are also new age startups Lendingkart, MoneyTap, etc.
SBFC has put in place an ambitious expansion plan in terms of distribution and size that requires the addition of infrastructure, human and financial capital. “This will result in a 15 percent quarterly increase in payouts for the next 12 to 18 months,” says Aseem.
The SBFC Finance team
The plan provides for a third of the districts in each of the federal states in which it is present. To keep the risk distributed, SBFC Finance ensures that every state does not have a book size that is more than 20 percent.
The future certainly looks bright for SBFC Finance as it digs deep into the market to integrate people into the mainstream and promote financial inclusion. At the same time, there is a strong focus on business metrics.
“Our strong profitable growth over the past three years is testament to our ability to develop and bring to market products that meet different requirements without compromising on equipment quality,” says Mahesh.