“Loan Sharks booked for suicide of SME unit owner” screamed the headline in many Gujarat as well as national dailies on 19th July 2018. A 37-year-old small scale entrepreneur from Rajkot had committed suicide, finally buckling under the threats from moneylenders for the last 18 months. Moneylenders or ‘sahukars’ play a significant role in most rural and small town economies and have for centuries been the only source of credit for farmers as well as small business owners. In rural India, families have often lost land, houses, loved ones and even taken their own lives as a result of the inability to pay off the sahukar’s ever increasing debt. But in today’s digital age can such suicides be avoided? The answer is YES – for, technology and finance coupled together can reach the bottom of the pyramid in a transparent, organized manner and support those SME entrepreneurs who were hitherto unserved or under-served at best, by leading financial institutions. One such organization that is offering efficient credit facilities to micro, small and medium enterprises is SMEcorner.
Over 3 decades of experience in Banking and Finance and important corporate roles like CEO, Equifax Credit Information Services and Managing Director, Retail Banking (India & Indian Ocean), Barclays Bank all fit the puzzle perfectly when Samir Bhatia decided to take the entrepreneurial plunge in 2015. Having served multiple banks over the years, he clearly saw the demand and supply gap in the financial needs of the SME sector and decided to make credit easily available to the unorganized retail segment in India.
Bhatia says, “In the initial stage, SMEcorner was modelled as a market place, where we connected an approved customer to a partner financial institution. However, the model had its limitations and the loan disbursal was not as quick as we had aimed for. I therefore changed the model to direct lending and applied for an NBFC licence, which we received in February 2018. This gives us at SMEcorner more flexibility to choose a customer based on our internal underwriting process, designed for this sector.”
Simplifying the loan process
Access to finance is one of the biggest challenges for a small enterprise in India with the time and bandwidth involved in getting a loan from a legacy financial institution often acting as deterrents for entrepreneurs. Many an Indian SME is unable to achieve scale for this lack of access to affordable finance.
SMEcorner uses emerging technologies to simplify the backend and make it more efficient and its feet-on-street force wins customer confidence through one on one interactions. Borrowers can choose to either fill application forms online or seek the help of an SMEcorner representative to fill it up physically on a smartphone.
“The technology back end combines machine learning, data science and artificial intelligence to take a credit call. Basis the information provided by the customer, we take few minutes to determine and convey it to them on the eligibility of the loan. The actual disbursement takes 3 working days. We always have a small meeting with the borrower and gauge details about their business before taking a final call on giving the loan. While we use technology aggressively we understand the need for personal connect and this is what makes us different” says Bhatia.
Do SMEs result in significant NPAs?
According to some industry estimates, India has about 60 million micro, small and medium enterprises and almost 90% of their credit needs are still unmet. This gives companies like SMEcorner a huge market opportunity and contrary to popular belief that SMEs turn into bad debts for lending institutions, Bhatia believes that they are in fact more conscientious as opposed to large corporations.
He says, “My belief is that the small and medium business owners value their reputation more than money and therefore have low default rate. Having said that, we use a lot of back-end technology to evaluate the information given by a customer. Our underwriting process involves a one-on-one meeting with the client, which not only helps us check the physical location of the client but also helps in establishing a long-term relationship with the client.”
Empowering SMEs with quick credit
SMEcorner has had many a success story over the last 3 years one of them being that of Hasmukh Dedhia, the owner of a bootstrapped readymade garments’ shop. The absence of collaterals meant he couldn’t apply for a significant bank loan even though he was sure that his increased stock would find demand. He discovered SMEcorner through an internet search, applied for a loan and based on his financials and credit score, almost instantly received approval from SMEcorner. Today he has nearly doubled his stock and his expansion options include buying a new shop or opening another shop with a new line of products.
Having received its NBFC license in February 2018, SMEcorner has already built a booksize of close to Rs 60 Crores and has financed over 900 SMEs. It is currently present in 9 cities and has 12 branches, all mostly located at busy market areas so they are easily accessible to target customers.
Technology driving revenues
Traditionally, the SME sector is not known to be organized in its business affairs – lack of standard accounting practices, cases of tax evasion and the absence of proper documentation have often landed small enterprises into big trouble with the authorities. As India gives itself a digital push across business as well as citizen services, the SME sector has no choice but to jump on to the technology bandwagon. Bhatia agrees that the technology challenge exists in small towns but things are changing at a rapid pace.
He says, “I agree to the fact that while the use of Smart Phone is wide-spread, there is a large segment of Indian businessmen who are still not comfortable with large sums of financial transactions on the phone. We therefore from the very beginning have developed a dual process approach. We use technology at the back-end for faster approval and disbursal. However, our strong sales team is trained to hand-hold its prospective and current customers with the loan application and document submission process.”
He adds that his only challenge at this point of time is to reach out to the large customer base quickly and efficiently.
The vision for SMEcorner
SMEcorner’s major revenue stream is the interest earned from the loans it books on its balance sheets and from the loan origination fees it charges its strategic-partner financial institutions. While Bhatia doesn’t share revenue figures, his vision over the next 3 years is to build a book size of INR 5,000 Crores and open 150 branches across 35 locations in 8 states.
Addressing the bottom of the pyramid, Bhatia strongly believes that the intersection of technology and new age financing options will continue to lead to innovative financing options for India’s 60 million MSMEs – resulting in lower costs as well as reduced time for loan processing. Supporting the aspirations of small businesses remains the core philosophy and the single most important goal for SMEcorner.
Bhatia says, “We have simplified and demystified the process for credit products. In the future, our emphasis will continue to be on maintaining a relationship driven business. However, we hope to use superior technology to simplify the credit approval process. We aim to be the first go-to option and a one-stop solution for all credit needs for the SME sector.”
**In June 2018, SMEcorner raised INR 47 crore (debt & equity) in a pre-series A round from Capital First, Accion Venture Labs and other HNI investors. In May 2017, it had secured funding from the Accion Venture Labs and The Dutch Growth Fund in addition to leading strategic HNIs.