According to a Nasscom report, the Indian FinTech software market is expected to reach $2.4 billion by 2020. There are over 57 million micro and small enterprises in India. These enterprises are not just difficult to reach, but it is also difficult to gauge their creditworthiness. Aye Finance is a FinTech startup that is using technology to solve these challenges and provide loans to small businesses.
Aye Finance’s Offerings
Gurugram-based Aye Finance was founded in 2014 by Sanjay Sharma and Vikram Jetley. It offers mortgage, hypothecation, and term loan services to micro, small, and medium enterprises (MSME) for their building capital assets and working capital needs. The company also offers mortgage loans and receivable financing to institutions and small businesses.
For small businesses, one of the biggest pain points is providing the collateral for funding. Nearly 85% of the loans that Aye Finance provides are collateral free. It charges an interest rate between 21% with collaterals and 28% without collaterals.
Aye Finance uses a proprietary cluster-based underwriting methodology. Called Cluster-Based Credit Assessment, its methodology is based on data points from industry-specific clusters collected from social, business, and demographic sources. It performs a preliminary market study to identify suitable business clusters and understand the dynamics of the cluster by interacting with buyers, suppliers and manufacturers. Once a cluster is selected, the company opens a branch and starts lending to that cluster.
For example, through its in-depth research on the shoe cluster of Agra, Aye was able to assess the creditworthiness of the micro and small shoe manufacturers operating in the cluster. So far, Aye Finance has opened 104 branches in 11 states in India. It has provided INR 1250 crore ($180 million) in working capital loans to 120,000 micro businesses.
Aye has also diversified into bookkeeping with a digital bookkeeping and advisory App to help micro businesses manage their businesses more efficiently. It plans to cater to at least 500,000 micro enterprises in the next five years.
Aye Finance’s Financials
Aye Finance became profitable in FY18. Revenue for the fiscal year more than tripled to INR 82.23 crore ($12 million) from INR 26.16 crore ($3.7 million) in FY17. Expenses more than doubled from INR 33.35 crore ($4.8 million) to INR 79.92 crore ($11.5 million). It thus swung to a profit of INR 2.3 crore ($0.3 million) in FY18 from a loss of INR 7.19 crore ($1 million) in FY17. It has a loan book of over INR 10 billion ($144 million). It currently has bad debts of less than 2% of its loan book.
Aye Finance is venture funded. It has so far raised $112.6 million in funding from investors including SAIF Partners, Accion, Google Capital, LGT group, MicroVest, Triple Jump, BlueOrchard Finance S A, Falcon Edge Capital, and MAJ Invest. Its last round of funding was held early this month when it raised $36 million at an undisclosed valuation. Earlier reports show that it was looking to raise funds at a valuation of INR 500 crore ($72 million).
Aye Finance competes with ZestMoney, i2iFunding, LendingKart, and LoanTap.