Startup Circle: How U Gro Capital disbursed US$100mm loans to over 6000 small businesses in just one year?

The NBFC startup, U GRO Capital Limited founded by Shachindra Nath on July 5th, 2018 with a vision to reinvigorate it as an SME & MSME focused financing platform catering to select sub-sectors within the market.

The Company has raised INR 950 Crores of Equity Capital from a diversified set of Institutional Investors and well-known family offices and has revamped its Board to include individuals with strong industry repute and deep domain experience.

U GRO Capital is are a highly specialized, technology-enabled lending platform – specifically designed to solve the credit availability issue.

U GRO Capital aims to bridge the gap for growth in SME’s across 8 high potential sectors like Auto Components, Chemicals, Education, Electrical equipment and components, Food processing & FMCG, Hospitality, Healthcare and Light engineering.

The company strives to build a strong SME financing platform based on sectorial understanding supplemented by a fully integrated technology and analytics platform. It is the only NBFC that has classified various sectors into sub-sectors and provides them with loans specifically tailored to cater to the size of their business.

How did you come up with the idea?

In my previous role, I have had the opportunity to build businesses across the financial services domain – I ran a life and general insurance company, India’s largest alternative asset management company, one of India’s largest NBFCs among others. During my dealings with Northgate, a group company, I took particular note of some of their notable Fintech investments (Kabbage, Prosper, OnDeck) and developed a firm belief that the future of the lending space would be dominated by these highly specialized firms that implemented technology to optimize their operations.

I also observed that of the venture investments made by Northgate, a disproportionately high number of the success stories were firms with the high specificity of focus. This was in sharp contrast to the Indian SME lending market where the only product available to lenders was loans against property and lacked a nuanced cash-flow based approach. That was where the idea of U GRO was born.

How does your platform work?

As each SME is unique in nature, it was important to bring in the nuanced approach of wholesale underwriting but at the scale and speed of a retail business – this required us to completely relook the credit lifecycle and automate the entire underwriting process.

Our GRO platform generates a go/no decision on the basis of statistical algorithms, data pulled out from API integrations and complex bank/GST/bureau analyzers running in the background. The entire process is automated and there is no manual intervention. The GRO platform takes only 10-45 min to take the decision.

What were the challenges and How did you overcome them?

The biggest challenge we faced was to get different stakeholders to buy into our philosophy – the industry was used to a gut feel based decision-making system with multiple deviations and exceptions taken by credit – this required a complete change in philosophy and multiple road-shows by senior management to convince stakeholders of the effectiveness of the platform

How did you build the core team (co-founders and initial employees)?

The idea was to bring together a set of people with complementing skillsets but with a common entrepreneurial bent – each of our senior management team has had the experience of building and scaling large businesses in organizations such as ICICI, Shriram Transport, CRISIL, Aditya Birla Financial Services

Our core belief is that the initial set of employees drive the culture of the organization and hence our philosophy of recruiting employees rated in the top quartile in the previous organizations that they have worked with

To incentivize employees towards broader organizational goals, we have created a large ESOP pool linked to mid to long term AUM and ROA targets – this has resulted in a remarkable shift in the behaviour of employees. We are witnessing employees going beyond their call of duty and chipping in in other areas

What has been your business growth till now?

The company was capitalized in July 2018 – we spent the first 6 months building the team, technology, and processes needed to scale.

We started disbursals in January 2019 and have since disbursed US$100mm in loans to more than 6000 small businesses and built an organization which is 150 people strong

What is the one thing that sets you apart from your competitors?

Our sharp focus on 8 sectors and 38 sub-sectors therein is what sets up apart from the competition.

This focus has allowed us to create customized products that help solve real challenges faced by small businesses and help underwrite credit better.

For example – the ability to evaluate a customer running a boutique hotel using online ratings, number of rooms, average room rate etc. or evaluating a dentist’s eligibility leveraging his qualifications, clinic vintage etc. – a large portion of transactions in such business involves cash and a conventional income statement evaluation does not help

Funding

We were fortunate enough to raise US$135mn before starting operations – we raised capital from a diverse base of investors including 4 large private equity funds – PAG, ADV Partners, Samena Capital and NewQuest, public market funds such as Abakkus, IndGrowth, Chattisgarh Investments and multiple family offices/HNIs

This was one of the largest capital raises for a start-up in India and has afforded us the luxury of investing in a best-in-class team and technology

Future plans

We are just starting up and have a huge way to go in our mission of “Solving the unsolved” – the SME credit availability problem in the country – we want to over the years evolve into a lending platform that can underwrite small businesses in all sizes and forms across the country. This involves building the ability to underwrite different forms of cash flows and equipment/machinery that an SME needs and building a distribution network that can reach the smallest of businesses in the country

Our company name and philosophy (“Know More, Grow More”) says it all - We exist to enable U (the small business owner) to grow and believe that growth is a by-product of the right kind of knowledge. The deeper our understanding is of U, the more growth we can enable. The future belongs to the curious. We believe we still have a lot to learn and know. And to us is knowing is growing.

Founder - Shachindra Nath, Executive Chairman

Shachindra Nath began his career as a commercial trainee and spent many years in rural India managing carpet industry. He has been instrumental in building diversified financial services business spanning ranging from Insurance, Asset Management, Lending, Capital Market from scratch.

Co-Founder - Abhijit Ghosh, whole Time Director & CEO

Abhijit is a progressive and resourceful decision-maker currently helming a framework for fast-growing businesses at U GRO Capital. Abhijit brings more than two decades of experience to the company from his key roles across Banking & Financial Services, Consumer Appliances, Hospitality, Telecom & Healthcare.