Reaching the Unbanked: How Co-Lending Partnerships Are Transforming Credit Access

Amit Mande

PSUs and large private sector banks play a crucial role as custodians of liquidity in the financial landscape. Despite regulatory and government initiatives aimed at disseminating credit to the last mile, challenges such as diverse priorities, limited focus on smaller towns, legacy systems, and traditional underwriting models have hindered the satisfactory flow of credit, shared Amit Mande, Chief Revenue Officer, U GRO Capital, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN).

U GRO Capital is tackling the substantial `25 trillion credit gap for MSMEs in India. Could you elaborate on the innovative lending models and technologies your company employs to address this gap effectively?

Non-Banking Financial Companies (NBFCs) play a vital role in India’s financial landscape, offering diverse financial services and fostering inclusion. U GRO Capital, a leading NBFC, is committed to empowering MSMEs, the backbone of our economy.

U GRO Capital is built on a vision of a dynamic India driven by thriving MSMEs, and we’re committed to being their trusted partner on their journey to success. By revolutionising the MSME lending ecosystem, we are trying to solve the unsolved and participating in servicing the `25 trillion credit gap of MSMEs in India. Our aim is to acquire 1 million customers and capture 1 per cent market share of the larger MSME lending market over the next three years.

Also Read | Transforming the credit landscape: Fibe’s co-lending initiatives and technological advancements reshape borrowing experience

Our endeavour to revolutionise MSME lending through technology is exemplified by our strategic deployment of digital stacks. At the core of this initiative is our in-house team of over 200 dedicated professionals, tirelessly working to ensure the seamless integration
of Application Programming Interfaces (APIs) across critical processes such as KYC validations, identity authentication, Bureau, Banking, GST, Repayments, and servicing. This meticulous integration serves multiple purposes. Firstly, it streamlines and automates key functions, enhancing the efficiency of processes such as validation and risk mitigation, thereby significantly lowering the likelihood of frauds. Secondly, it ensures a robust and reliable source of data for analysis and risk assessment.

In response to this gap, NBFCs like U GRO Capital have demonstrated remarkable agility. By leveraging their advanced data tech platform and going the extra mile, they have successfully delivered credit to the last mile MSMEs. Recognising the need for collaborative efforts, co-lending arrangements between institutions have emerged as a strategic solution. Through co-lending partnerships, large institutions can channel credit to the last mile customers. This collaborative approach not only facilitates access to credit for smaller MSMEs but also bolsters the liquidity position of NBFCs.

NBFCs are considered crucial in supporting MSME growth. How does U GRO Capital position itself as a primary catalyst in this space, and what unique strategies are you implementing to support MSMEs?

At U GRO Capital, we take pride in being a pioneer of Lending as a Service in India, with co-lending standing as one of the key pillars of our success. As of March 2024, our AUM stand at INR 9,047 Cr. Notably, 45 per cent of our total AUM comprises off-book AUM, a testament to the efficiency of our co-lending partnerships. These collaborations have proven instrumental in bridging the credit gap, ensuring that financial resources reach the grassroots level of the MSME sector, and contributing to the overall growth of the economy.

U GRO Capital has consistently championed the strategic utilisation of data in every facet of our decision-making processes. Whether identifying optimal locations, targeting specific customer demographics, conducting risk assessments, or monitoring portfolios, data plays a pivotal role in shaping our approach. Central to our risk assessment framework is our proprietary GRO Score model that operates on a tripod of Banking, Bureau, and GST data. This comprehensive approach allows us to evaluate diverse risk profiles, strengthening our overall portfolio. The synergy between our proprietary risk model and technological capabilities empowers us to make informed credit decisions swiftly and efficiently.

What are the major challenges U GRO Capital faces in scaling its assets, business, and operations as a fintech lender, and how do you plan to overcome these hurdles to ensure sustainable growth?

U GRO Capital is on a mission to empower MSMEs and achieving our ambitious growth plan of reaching 1 million customers in 3 years comes with its own set of challenges. The MSME lending market is dynamic and competitive. To stay ahead, we differentiate ourselves through continuous innovation. We’re constantly expanding our product portfolio, leveraging cutting-edge technologies like GRO X for instant credit. Furthermore, our data-driven approach and sector expertise provide a deeper understanding of MSME needs, allowing us to create customised solutions.

Tackling liquidity challenges, U GRO leverages its capital through the Co-lending model, aiming for a 50 per cent off-book AUM (currently at 45 per cent). On the asset side,
to reach geographically dispersed MSMEs, U GRO is rapidly expanding its branch network to about 300 by year-end.

Capital inadequacy runs rampant in the sector that we function in, and it is
imperative to gain trust amongst investors and shareholders for fundraising. Good capital raises are always testament to a company’s trust in the field, and we recently had an equity capital raise of a whopping INR 1,332 CR. In other words, the capital inadequacy faced by a majority in the BFSI sector seems to fall flat when facing the sheer confidence that U GRO Capital holds in the industry. By addressing these challenges head-on and implementing these strategies, U GRO Capital is well- positioned for sustainable growth.

How does U GRO Capital collaborate with traditional financial institutions to enhance the reach and effectiveness of your lending models, and what benefits do these partnerships bring to MSMEs?

PSUs and large private sector banks play a crucial role as custodians of liquidity in the financial landscape. Despite regulatory and government initiatives aimed at disseminating credit to the last mile, challenges such as diverse priorities, limited focus on smaller towns, legacy systems, and traditional underwriting models have hindered the satisfactory flow of credit. This has resulted in a significant credit gap that needs to be addressed.

In response to this gap, NBFCs like U GRO Capital have demonstrated remarkable agility. By leveraging their advanced data tech platform and going the extra mile, they have successfully delivered credit to the last mile MSMEs. Recognising the need for collaborative efforts, co-lending arrangements between institutions have emerged as a strategic solution. Through co-lending partnerships, large institutions can channel credit to the last mile customers. This collaborative approach not only facilitates access to credit for smaller MSMEs but also bolsters the liquidity position of NBFCs.

What is your vision for the future of digital lending in India, and how do you plan to stay ahead of the curve in terms of technology adoption and service offerings?

Our vision is to become the largest small- business financing institution in India, driven by data and technology. We pioneered cashflow-based lending with a starting capital base of INR1000 crores and strategic data analytics investments. Our commitment to understanding and meeting the genuine needs of MSMEs has driven our growth. Today,
with a diverse portfolio spanning secured and unsecured lending, equipment finance, supply chain finance, green finance, and micro- enterprises, we operate over 150 branches nationwide.

In the realm of rooftop solar, we’ve forged partnerships with a comprehensive network of solar panel manufacturers and numerous Engineering, Procurement, and Construction
(EPC) companies. This strategic collaboration ensures that our green financing solutions reach the last mile, empowering MSMEs to harness the benefits of solar energy.

Also Read | Tech-Enabled NBFCs Empowering MSMEs with Supply Chain Financing Solutions

We’re still in the early days, so adoption is at the ground level. It is critical to understand the assets, given that these assets are continuously evolving and hence, a structured reuse market has still not been established. With our understanding of credit risk and partnerships with platforms that understand the asset risk or give us comfort on reuse, refurbishments or buybacks, we have taken the pioneering steps in the green financing space, expecting to soon be a quantum player.

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