The government should insist banks on keeping funds aside for small and midsized NBFCs to avoid another crisis. Banks must differentiate between the NBFCs and should qualify the stronger NBFCs, says Hardika Shah, Founder & CEO, Kinara Capital, in an interview with Elets News Network (ENN).
Give us an overview of your products and services.
Kinara Capital transforms lives, livelihoods, and local economies by providing fast and flexible loans without property collateral to the underserved Micro, Small & Medium Enterprises (MSMEs) in India. We offer loans in the range of Rs.2-25 lakhs for working capital, asset purchase, line of credit and other business expansion needs. By not taking any property collateral, we have extended financial inclusion to many MSMEs in the informal sector.
Almost half of our customers are new to credit and to formal lending. Kinara Capital’s on an average have reported a 20 percent increase in their business income from the entrepreneurs who have taken loans from us. As a result of our services, Kinara Capital has impacted over half a million lives in India with income generation, job sustenance, and new job creation, especially for women and first-time earners. To date, we have disbursed Rs.1,160 crores across 34,000+ loans.
There is a liquidity crisis in the market after IL&FS. What steps do you feel the government should take to improve it?
The Government has initiated steps to ease the liquidity in the system and rate cuts have been given to the banks. The government has infused Rs 40,000 crores in public sector banks to provide a boost to all sectors that have been gripped by a slowdown. However, the banks are still not lending to non-banking financial companies (NBFCs) because they are painting all NBFCs with the same brush.
We have a vast and mixed economy in India and NBFCs play a critical role in driving economic growth. The Government should insist banks keep some portion of funds aside for small and midsized NBFCs to avoid another crisis. Banks must differentiate between the NBFCs and should qualify the stronger NBFCs, perhaps by reviewing parameters like whether Reserve Bank of India (RBI), has qualified the NBFC as systemically important or not along with the NBFC’s profitability, overall growth, and portfolio quality.
Kinara has raised $14.2 million from private equity. What new investments are you looking forward to?
We have always raised funds as needed for our business plan. As a company, we believe in sustainable growth and, therefore, we hit profitability within four years of our inception. Our strategic approach has meant that we are one of the NBFCs not to have suffered from the liquidity crunch. This year, we are happy with the vote of confidence from our investors who doubled-down and have invested in our growth at a time when the NBFC industry has been struggling.
RBI has framed guidelines for NBFCs recently. How is it going to change the current financial situation of NBFCs?
The recent moves by RBI is a good thing for the long term viability of the ecosystem. As per the new RBI proposal, NBFCs that need to increase their capital adequacy will find investors to back them if they have a strong business model and have demonstrated financial sustainability. For the NBFCs who are on the cusp, RBI is giving them ample time to push for scalability. It is time to sink or swim for NBFCs with low capitalisation to either pivot their business models or find the investors who believe in their vision.
What new innovations are you planning for the next five years?
Five years is a long way away but we do plan to grow in our existing regions and expansion into new regions. We are one of the few financial services companies that have a majority women-led management team, so we are very motivated to bridge the financial inclusion gap for women entrepreneurs. In the short-term, we are working on new services and products specifically tailored to support women entrepreneurs. We want to mobilise women entrepreneurs by providing incentivised loan products and services.