Being public from day 1 helps create a long-term institution: U GRO Capital MD 

The small business financing credit gap in India has been a long-standing problem. Even after gaining a lot of attention in the last five years, the total credit gap for MSMEs has increased from ₹55 trillion to ₹85 trillion. We believe that with the growing formalisation of MSMEs, the adoption of GST, the digitisation of banking data, and the maturity of bureau footprint, lending to small businesses is fast moving towards cash flow-based lending. Given the vast credit gap in this sector for many years to come, and irrespective of the number of new lenders, this space would never be crowded.

Our focus is on MSME customers with a turnover ranging from ₹25 lakhs to ₹15 crore. We consider this group underserved, and our data-driven underwriting model is exceptionally effective for them. Notably, 95 per cent of the total credit gap for MSMEs exists within this customer segment.

U GRO Capital was India’s first listed start-up. We have seen the success of SPAC vehicles in the US, which gives an opportunity to public market investors to benefit from the creation of new businesses. Most of the time, public market investors get access to only matured companies and we wanted to change this. Additionally, it was our belief that being public from day one allows us to create a long-term institution, wherein governance, transparency and performance have to be at par with larger and more established listed peers.

Our conviction is that harnessing data is the solution to driving credit underwriting for MSMEs in India. Secondly, we need to keep building capabilities to address the diverse credit needs of MSME customers in India.

As a company, we were not impacted much during the pandemic given the nature of our portfolio. However, one must create a balanced portfolio between secured and unsecured credit, so that, through crises, one can contain the credit cost as a lender. Moreover, at no point in time should we lose focus on understanding the needs and problems of our customers; being empathic to them and always endeavouring to solve their credit problems is truly what drives the business.

As an independent institution without a large corporate parent, our cost of funds decreases over time with vintage, witness improved portfolio performance, and achieve greater profitability. This autonomy allows us to navigate the financial landscape with flexibility, ensuring sustained financial strength and success.

Banks are lenders to almost all segments in India. They look at co-lending as a product and not necessarily as an experiment to enter those segments themselves. Banks understand the underlying customer segments very well and are getting into co-lending arrangements with NBFCs because of their reach and being nimble footed during collections. Since NBFCs incur most of the operational expenses, banks stand to benefit by saving on the same. Hence co-lending is a highly value-accelerating product for banks because of their low cost of funds as well as higher capacity to leverage.

The advantage of retail deposit to build a large scalable business is getting offset by co-lending where, with the same benefits, we can provide to our customers. Our aspiration is to build India’s largest small business financing institution regardless of its form.