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.
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.
Sanchit Vir Gogia: Sanchit is the Chief Analyst, Founder & CEO of Greyhound Research, a Global, Award-Winning, Technology & Innovation Research & Advisory firm. To read more about him, click here.
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