ISB alumni to inject fast and affordable credit for small businesses in India

The small and medium businesses (SMEs) in India include 63.4 million units and accounts for nearly 30% of India's GDP, employing about 460 million people.

It makes up for 33.4% of the India's output in manufacturing, giving employment to around 120 million Indians, as per Confederation of Indian Industry (CII).

Under the ‘Startup India’ initiative, the government recognized 50,000 start-ups that created 5.5 lakh jobs, as of June 03, 2021. The budget allocation for MSMEs in FY22 more than doubled to $2.14 billion $1.03 billion in FY21, as per India Brand Equity Foundation (IBEF) report.

In Union Budget 2021, the government announced funds worth $1.36 billion for ‘Guarantee Emergency Credit Line’ (GECL) facility to eligible MSME borrowers, giving a major boost to the sector.

Although the sector is a major contributor to the socio-economic development of the country. In India, the sector has gained significant importance due to its contribution entrepreneurship development especially in semi-urban and rural areas of India.

In a recent interview with Abhishek Kothari, co-founder of Flexiloans.com, he discusses how financing can boost this sector and what role can private financial institutions play.

“Most of my childhood has been in Rajasthan and I grew up in a middle class family. My early days were focused on clearing IIT-JEE and once I did that, I have loved my data science career and the opportunities to work in US and Europe,” Abhishek said.

What made you kick-start FlexiLoans?    

In 2015, India was witnessing a dramatic shift towards financial inclusion and that gave us the perfect timing. The four founders of FlexiLoans are friends from Indian School of Business.

We all were at different points of our career but were dreaming to build an institution that can contribute to India’s growth. We wanted to build a branch-less, agent-less, paper-less business model.

Why do you think that there is a need for your company to exist in today’s market?

India has over 60 million small businesses and more than 65% have not borrowed from a financial institution before. This staggering $250 billion credit gap has a direct impact on our GDP.

With such a wide underserved market, India needs many more companies like FlexiLoans. Notably our honourable Finance Minister Nirmala Sitharaman, said recently – India needs four to five banks of the size of SBI to support the economic growth.

How did you adopt tech at FlexiLoans?

The platform at FlexiLoans is built as the operating system for lending that can be used as a SaaS by any ecosystem. It offers onboarding, document handling, CRM, underwriting, risk management, KYC, escrow management, digital disbursement, and digital collections.

Can you differentiate between the types of financing you provide?

We offer five products for SMEs through our platform,

• Term Loans: EMI loans up to 36 months tenure
• Line of Credit: Flexible Funds like an overdraft facility
• Buy Now Pay Later: For short term B2B credit
• Vendor Financing: For vendors to bridge their working capital
• Merchant Cash Advance: Daily Settlement product for merchants accepting digital payments

How did financing change during the pandemic?

Pandemic has been tough for MSMEs and the long term effects are still to be seen. The policies on moratorium and restructuring by the government were helpful in providing short term relief and now we are seeing a strong resumption of business activity.

Most sectors are seeing recovery and are looking for financing for the upcoming festive season. Notably the impact of the second wave was significantly lower than the first. Most of the business owners had adapted to the new normal and were able to find ways to buy and sell goods.

According to you, what would you like to change about finance and banking in India?

This decade is going to be exciting. With the large-scale adoption of UPI and the launch of AA, OCEN and other digital initiatives, BFSI will look very different in five years from now. More innovative experiences are being orchestrated and there is going to be a significant unbundling of financial services.

RBI is a nimble regulator and I am certain that the current and future players in this space will make the most of these new initiatives.

In today’s world, there is a huge need to safeguard data, what steps have you taken to secure your company?

We have a dedicated cyber security team and partners who constantly help us navigate the ever evolving cyber threats. Along with that,

• Build secure networks to protect online data from cyberattacks
• Restrict and monitor access to sensitive data along with encryption
• Train employees regularly in online privacy and security measures
• Establish data protection practices (document shredding, secure locks, data encryption, frequent backups, access authorization etc.)

Any recent developments?

We have recently launched Buy Now, Pay Later for SMEs. This product is popular in the consumer segment where consumers can buy from leading ecommerce players and convert their purchase into delayed or split installments.

We are launching the same product for SMEs when they buy from brands or distributors. This will allow retailers to bridge their working capital gap and stock inventory for seasonal demands.

Any latest round of investment?

We were lucky to raise 150 crore rupees of equity and debt in October 2020 which has allowed us to scale and invest in technology. We continue to raise debt and our asset light business model allows us to scale the platform through co-lending. Having said that, we are a lending platform and capital is our raw material.