Rising demand for credit, particularly faster access to it, coupled with technological advancement, will pave the way for greater adoption of Embedded Finance, shared Hardika Shah – Founder & CEO, Kinara Capital, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN)
In the realm of collateral-free lending, Kinara Capital has played a pivotal role in driving the growth of the MSME sector. Could you elaborate on the specific mechanisms or strategies employed by Kinara Capital that have made collateral-free lending a game- changer for these businesses?
The genesis of Kinara Capital stems from the mission to democratise access to formal capital for MSMEs and enable them to unlock their for MSMEs and enable them to unlock their true potential. We wanted to bring about a transformation in the way access to capital and the last-mile lending ecosystem was set up in India. And hence, we conceptualised an MSME lending model that would open the door to financial inclusion and growth for thousands of small business entrepreneurs, with the simple idea of a collateral-free loan at the center. We were very aware of the fact that mainstreaming collateral-free credit needed to be supported by a clear, precise and scalable execution model. Here are some of the strategies that we implemented early on and have been instrumental in ours as well as the industry’s growth:
- Implementing data-driven credit assessment: The first pillar we set up was data-driven and technology-anchored credit assessment. At the very outset, we devised
a specialised risk-assessment methodology that could assess creditworthiness beyond credit score. Our proprietary AI/ML-based, data-led decisioning models, decide on loan eligibility based on 100+ distinct inputs, aggregate variables, macro factors, sector and location-specific information, etc. This tech-enabled credit assessment strengthened our underwriting and eliminated human bias from credit decisioning. The automated assessment process empowered us to reach out to the underserved sections within the MSMEs like women MSME entrepreneurs and provide equitable access to them. - The other piece of the puzzle was the speed of delivery. Typically, MSMEs run on a 2-3 month cash flow. Any delay in accessing capital can have a major impact on their functioning, hindering their ability to seize market opportunities, or even keep their operations running smoothly. The robust technology we devised enabled very fast and efficient credit assessment, which has helped us to lower our turnaround (TAT) to just 24 hours. This ensures that MSMEs are able to access credit within the right time frame.
- High-tech, High-touch model of operation: At Kinara Capital, customers are the heart of our operations. We value personalised interactions as much as digitising access. We were well aware that MSMEs would not be readily willing to come on board with a completely digital interface. According to a survey conducted by CRISIL in 2022, around 80% of SMEs expressed hesitancy to share their financial data online due to fear of data theft. Recognising the diversity of our customers, we implemented a blended approach that offered both online and personalised customer service options, ensuring seamless access for all. Our multilingual myKinara App allows an end-to-end loan application process in over 6 regional languages. We have a strong 2000+ employees spread across 133 branches and 100+ cities who offer omnichannel customer support to our customers.
Our singular focus on supporting MSMEs coupled with our comprehensive strategic approach has helped us to scale and serve MSMEs from across sectors. We have disbursed over INR 6,200+ crores across 1,00,000+ loans collateral-free loans. We are looking at achieving the milestone of over USD $1 billion in cumulative disbursement and support for many more MSMEs.
As we approach 2024, the landscape of MSME lending is continuously evolving. What trends do you foresee shaping the MSME lending space, and how does Kinara Capital plan to stay ahead in adapting to these trends for the benefit of its clientele?
Here are the major trends that I see shaping the future of the MSME lending space:
- Embedded finance: Rising demand for credit, particularly faster access to it,
coupled with technological advancement, will pave the way for greater adoption of Embedded Finance. Our own MSME Sentiment Survey revealed that over 55% of MSMEs want an instant line of credit to accelerate everyday business decisions. Similarly, the tech transformation that has been underway is expected to see an upswing, leading to the simplification of assessment, as well as a boost in the prospects of embedded finance. It will foster partnerships across e-commerce platforms, NBFCs, banks, and other players, and enable faster access to credit at the point of sale as well as open up new opportunities to serve niche credit needs. - Robust tech-enablement: With the proliferation of technology scaling at a fast pace, there will be more opportunities to serve MSMEs. For instance, the OCEN protocol is a new paradigm for credit that provides lenders with a standardised set of APIs so that applications that already interface with MSMEs can plug in their lending capabilities into their existing products. Combined with embedded finance, which is integrating credit options into apps that people use every day, this will further democratise access to financial products for last-mile customers and enable the inclusion of more MSMEs into the fold of formal financing. We are closely watching this trend, as we keep on integrating our services with such platforms and third-party service providers to reach out to an increasingly wider set of customers.
- Omnichannel presence: Personalised interactions and trust-building between borrowers and lenders hold immense significance in the lending process, as does product customisation. This is especially true for last-mile customers, who may still have misgivings about the terms and conditions or transacting online. Striking the optimal balance between automation and human involvement is vital. We expect more fintech players to take up this hybrid approach, which we have adopted, combining digital accessibility and in- person interactions with their customers to optimise the process.
Embedded finance has emerged as a transformative force in various sectors, including MSME lending. How does Kinara Capital leverage embedded finance to significantly boost its MSME lending operations, and what kind of impact has this approach had on the accessibility and efficiency of financial services for small businesses?
The concept of embedded finance is still in its nascent stage in the country, but we recognise its immense potential and have scaled up our presence in the space. We have created different APIs that can easily allow integration with our strategic partners and this is fast becoming a game changer for us as well as the industry. Within a short span, we have entered into a strategic alliance with partners from across industries such as Gromor Finance, Meesho, Ninjacart etc.
We are looking at expanding the ambit of our partnerships and the reach of our services. We intend to boost our disbursal through embedded finance by 25-fold by 2025.
Gender lens investing is gaining momentum globally, and Kinara Capital has been at the forefront of creating a tremendous impact through such an approach. Can you share specific initiatives where gender lens investing has led to positive outcomes for both Kinara Capital and the MSMEs it supports?
Ignoring nearly half of our population is a formula for failure. It is critical to make
gender lens investing an integral part of the growth narrative. While women form only 20% of the MSMEs they contribute to over 40% of the overall credit gap in the MSME space. The major gap that has plagued this segment even today is that of credit access. The credit gap faced by women-owned MSMEs is over $158 billion. This is in part because of inherent gender bias, which affects loan decisioning, but can be majorly attributed to the fact that women MSME entrepreneurs rarely have assets in their name which can be leveraged as collateral to get a loan.
To remedy this, we launched the HerVikas program for women entrepreneurs 4 years ago. Under the HerVikas program, women-owned MSMEs qualify for an upfront discount, which is automatically offered without requiring a separate application. At the back end, we employ proprietary AL/ML-led models, which eliminates any human bias from the loan decisioning process, leveling the playing field for women entrepreneurs.
The HerVikas program is part of the company’s efforts to support women MSME entrepreneurs and enable them to grow their businesses to drive gender parity. We had committed to disbursing INR 700 crores through HerVikas and have disbursed more than 90%. The impact of the HerVikas program has been significant. It has led to cumulative post-loans net income generation of over INR 186 crore for women entrepreneurs. Women who own businesses also employ more women and invest in healthcare and education, affecting positive generational changes in their communities.
Looking ahead to 2024, could you provide insights into Kinara Capital’s future endeavors in the MSME sector? Are there any strategic plans or initiatives in the pipeline that you would like to highlight, particularly those aimed at addressing emerging challenges or opportunities in the current economic landscape?
Our focus this year will be centered around leveraging technological advancements, strengthening our presence in areas such as embedded finance and meeting the niche credit needs of MSMEs. We are already pursuing collaborative growth through industry partnerships like co-lending, and reverse co- lending as well. We are one of the early adopters and proponents of sustainable practices. Going forward, apart from strengthening our internal practices, we will be focusing on developing products that encourage value-driven adoption of greener as well as other sustainable practices by MSMEs.
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