Inditrade enters MSME lending with merchant cash advances

Inditrade Group, a leading agri-commodity financier, is entering the MSME lending business after identifying a “large unmet demand” from a segment which it describes as one of the most unbanked.

“We’re starting with merchant cash advances (MCA) to shopkeepers, restaurants, spas, saloons, groceries or kirana shops,” Sudip Bandyopadhyay, Chairman, told BusinessLine.

Collection schedule

“This would be our newest offer over and above agri-commodity financing and microfinance. We’re targeting those segments of trade or groups of people who do not have a banking line, banking limits or whose banks refuse to lend.”

Inditrade will initially look at predominantly urban shopkeepers and outlets and make recoveries from their collections – daily, weekly or monthly – depending on the structure of the loan. “We’ve got the team, systems and procedures in place. We’re starting in Mumbai. We would then go to Pune, Hyderabad and Chennai. Kerala would be the next stop, with a focus on Kochi, Thiruvananthapuram, Kannur and Kozhikode.”

Hyderabad, Pune and Mumbai would be covered during this quarter itself. Coimbatore is the other city in Tamil Nadu where Inditrade plans to launch operations by end of this quarter or early next.

Only a few players

“The requirement is huge, and we’ve done our analysis,” said Bandyopadhyay. “There are only a few players who serve this segment. But, by and large, no more than 10 to 15 per cent of the demand is met.”

When asked about the size of the market, he said that retail is a huge opportunity in India, and will become even bigger, going forward. The storied consumption trend has been holding out for the most part.

“If you take out the organised retail – the Shoppers Stops, Lifestyles and Big Bazaars – I would say 80 per cent of the market is unorganised. The demand is significant.”

There are multiple estimates at different levels about the size of the market at different levels. It is very difficult to put an exact number to it since the segment is being mainly serviced by moneylenders, own resources, friends and family.

The loan ticket size with one-year tenor can range between ₹3-25 lakh, said Bandyopadhyay. “We’ve created three buckets of ₹3-10 lakh; ₹10-15 lakh; and ₹15-25 lakh.”

Loan book size

Inditrade has set a target loan book size ₹100 crore for this financial year itself. The interest rate will depend on the credit risk it assumes for a borrower. Normally, it would be 1.5 per cent per annum. This can go up to 2 per cent in individual cases.

But it can also come down in deserving cases. Explaining the standard system of recovery, Bandyopadhyay said the case of a borrower with a PoS machine at his outlet is instructive.

“We’ve a working arrangement with PoS vendors. Let’s say, you’re a kirana shop with a PoS machine and you swipe for ₹5,000 a day. The PoS vendor may collect ₹500 and give you ₹4,500.”

This is agreed in advance with the borrower. Repayment schedules are customised in most cases, based on the business cycle. Inditrade has got all approvals of the RBI in place to enter the business, added Bandyopadhyay.