Exclusive Interview: MSME has potential to create globally competitive business for India, says Sanjay Sharma MD of Aye Finance

The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic section for the Indian economy. With BJP-led NDA government's various reforms, the sector has been boosting entrepreneurship. According to the ministry, the MSME is contributing significantly in the economic and social development of the country by fostering entrepreneurship and generating the largest employment opportunities at comparatively lower capital cost, next only to agriculture. Following which, Aye Finance who has been catering to over 55 million MSMEs in India, has showcased their vision for this sector ahead and how it is helping the country. 

Sanjay Sharma- Co-Founder & Managing Director, Aye Finance in an exclusive interview with Zee Business Online, stated that new age entrepreneurs hold the potential to create globally competitive businesses from India. Check what all he said in this interview:-

 Edited Excerpts: 

1. How do you think the MSME Sector is placed in a country like India in the near future?

MSMEs in leading economies like China and USA contribute about 60% to the GDP of the country, while the Indian MSMEs contribute a measly 8% to the National GDP. With over 95% of the 67 million micro enterprises falling into MSME category, they will have a central role in India’s emergence as a developed super economy. Apart from providing employment at rural and urban levels, the sector supports the development of new age entrepreneurs which hold the potential to create globally competitive businesses from India.

2. Considering sanction of MSME loans has been enhanced, there are portals approving a loan in 1 hours’ time as well. But many experts have also stated it will at certain level increase slippage in case of banks. What do you think about MSMEs loans impact on your company? 

While 1-hour loan is a good hook to catch the imagination of a nation, the speed of approval is not a game changer for MSMEs. The overall penetration of credit to a large base of MSMEs and adequate funding of their demand are the key requirements.

 We have continued to focus and improve our methods to better assess the capabilities of our excluded MSME clients so that we may deliver them optimal credit. For the excluded micro enterprises, it is difficult to meet the requirements of a digital origination platform and we have continued to grow rapidly using an assisted fintech approach.

3. How safe it is to give MSME loans? 

Our experience of having extended credit to over 1,25,000 micro enterprises has shown that these businesses do not lack the intention to pay back their liabilities but lack awareness. Majority of our customers are used to transacting in cash.  We have mentored them to migrate to non-cash methods of repayment. We counsel them at the time of disbursal on the benefits of creating a good credit history and advise them to ensure sufficient balance on the due dates to instil a good repayment behaviour. Today 95% of our customers use the ACH method of repayment and our NPAs have continued to remain below our planned model.

4. What are the real challenges an MSME sector faces in terms of GST, tax structure and others if any? 

Majority of micro enterprises have no obligation to file GST returns as minimum cap for GST registration is INR 40 lacs per annum. However, many of our customers have got registered and that is a progressive step in getting assimilated into the future digital channels.

In reality, Tax and GST are much smaller issues in the micro enterprise universe. The bigger issues are adequate funds and required guidance on how to access markets optimally and how to make the product competitive in an increasingly globalizing world.

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5. How does a platform like Aye Finance compete with banks in giving MSME credit? 

The customer we are targeting is very different from that of the Banks. Our customers do not maintain formal books of accounts and seldom have credit histories making their credit assessment a challenge for Banks and even formal financial institutions. Additionally, the low ticket size of the loan makes our customer unattractive for the Banks. We have successfully overcome these challenges having innovated on a method that uses insights of each industry cluster to underwrite these cases. This enables us to arrive at a robust lending decision despite using a variety of non-standard data points on each business and its supply chain. We have kept a tight focus while targeting customers and leverage technology and data sciences to keep our cost of origination and servicing of these small ticket loans at minimum levels 

6. What is Aye Finance's vision for going ahead?

Our vision is to become an admired financial institution with a leadership position in microenterprise lending. Having enabled the inclusion of over 1,25,000 grassroots businesses and impacted over 2.5 million people in over 5 years, our vision is taking shape rapidly. In the coming years, we will continue the strong growth in lending to micro enterprises across India and in creating a transformative change for this excluded sector. We will make our services to our clients go beyond finance and this will support our vision for a holistic impact that will power the growth of micro-enterprises in a new age India.

7. Any other company details and growth milestones to be highlighted. 

FY2018-19 has been a landmark year for Aye Finance. We closed 2 rounds of equity, Series C and D, raising over INR 380 crores and added CapitalG and Falcon Edge to the list of our accomplished existing equity partners - Accion, SAIF Partners, and LGT.  This year we also crossed the mark of 1,00,000 loans disbursed.