Microfinance & MSME - The Hype Is Real!
Entrepreneurs are like leopards, patiently observing at first (a.k.a. ‘stalking’): the rising ailments of traditional businesses and then making their disruptive entry (a.k.a. ‘pouncing’) at just the right moment. The only difference: they don’t pounce to take lives but only to ‘put them out of their misery’. In this fast-moving world, ‘Entrepards’, as we like to call them, are everywhere!
Some searching for their prey, some stalking, and some who finally made the pounce.
The latest stalk-chase-pounce by Entrepards that we’ve caught our hands-on is unfolding in the
Financial Sector. Microfinance, a financing tool that provides short-term credit breath to micro,
small and medium enterprises (MSMEs) as well as nascent entrepreneurial setups, has picked up pace in recent years and rightly so at a time, when the Indian credit market is not at the best of its mood.
As the space witnesses traction and opportunity, Flipkart’s ex-CTO, Ravi Garikipati along with Raj Vattikuti has come up with a microfinance company, Davinta Financial Services, primarily focusing on three segments; rural, urban, and micro-entrepreneurs. Davinta, which caters to both rural and urban populations, has built a unique underwriting model based on an artificial intelligence engine that in ‘near’ real-time creates specific customer profiles based on a proprietary list of variables. With an ambitious goal of keeping the venture at zero-percent NPAs, the founders seem to be confident about the prospects and claim that the rural segment will contribute to the extent of 75% of the overall lending business.
Our favorite Entrepard, Sachin Bansal probably also saw what Garikapati and Vattikuti did and that’s how we know that the buzz is real. In an interview with Business Standard, Bansal expressed his bullish stance on the microfinance sector. This was further verified through his recent investment move of acquiring 94% stake in Chaitanya India Fin Credit (an NBFC catering to the financial service needs of the rural masses), at INR 739 crores, in September’19. Bansal’s, Navi Technologies is closely working with the NBFC to come up with a digitized product suite for microfinancing. If this is not enough to make you believe that these ex-Flipkart colleagues are probably headed for a bull fight, this surely will: On 28 January’20, Bansal also resigned as Independent director of Ujjivan Small Finance Bank “in the interest of propriety and to prevent conflict of interest”, as he puts it, arising out of the fact that his wholly-owned firm Navi Technologies has applied for a banking license.
Zoom Out: Before you think that the fall of the financial sector is alone going to take credit for attracting the entrepreneurs into the sector, we beg to tell you that equal credit also goes to the rising importance of MSMEs and Startups in the Indian ecosystem.
Even N R Narayana Murthy, co-founder of Infosys who chairs a Sebi Panel on Alternate Investment Policy Advisory called out for policy changes in the financial sector by allowing Pension funds, Corporations, and Banks to invest in startups.
Jeff Bezos, founder, and CEO of Amazon, on his recent visit to India also promised to pump in a whopping USD 1 billion in the economy by extending aid to the small Indian businesses to
come online. Amazon aims to digitize 10 million MSMEs with the investment.
Even Budget '20 reverberated the importance of MSMEs and startups in the Indian economy as the finance minister allocated a record high INR 7,572 crore (8% y-o-y increase) to the MSME Ministry.
The Government’s move to enable NBFCs to extend an app-based invoice financing to the MSMEs through TReDS (Trade Receivables Discounting System) was well received by the industry.
To further address the working capital credit issues of MSMEs, a scheme has also been proposed to provide subordinate debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the 27 Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE).
As the hon’ble finance minister Mrs. Nirmala Sitharaman puts it, “MSMEs are vital to keep the wheels of the economy moving.”
With inflation rising, real interest rates falling, clingy NPAs, lethargic credit flow, failing NBFCs & weakened consumer sentiments, the financial world is crying! And we believe, somewhere out there, the entrepreneurs have heard the calling. Hold tight, because they’re coming!
This article is a part of the February'20 edition of our Startup Newsletter. Here's the complete publication: