 "Start-ups target SME funding")
Out of India's 50 million-odd small and medium enterprises (SMEs), only six to seven per cent manage to get access to funds. With the Indian start-up eco-system blooming, entrepreneurs are now using technology to tap this space.
On the other hand, a plethora of players such as Paytm, Oxigen, Mobiqwik and others have emerged, who want to cater to retail customers and reduce their payment issues. New-age technology-based companies such as Innoviti, Pine Labs, and Capital Float have come up with models that ease out payment issues for SMEs.
Bengaluru-based Capital Float has raised $17 million in funding from Sequoia Capital, SAIF Partners, and Aspada. The company is also using its equity to finance loans from banks and other lenders. Its revenue model is a combination of interest and fees.
Founded in 2013, Capital Float has created a propriety platform to evaluate the financial condition of an SME and provide working capital requirements in about seven days, compared to a traditional bank that would take two months. At present, the company is working with all major e-commerce players - Flipkart, Snapdeal, Jabong, Amazon, Myntra, etc - small merchants, and business to business service providers. The company is a registered non-banking financial company.
"India has a huge SME segment whose lending needs have been ignored. Various estimates suggest about $200 billion funds are required by SME in India for their working capital needs. At present, this is mostly funded by loan taken from family and relatives. For Bank loans, the time taken is two weeks to one-and-a-half months. Since many have to focus on day-to-day operational issues, they do not have the time to stand in long queues at banks," added Sashank Rishyasringa, co-founder, Capital Float.
The company has created a platform that focuses on getting the details of the merchant and collection of documents in a way that's convenient to the applicant as well as the underwriting team.
"For the documents, we integrate with a number of third-party sources in order to fetch documents on behalf of the applicant so he or she doesn't need to provide them to us. This simultaneously reduces the load on the applicant, as well as increases the level of trust in the data that we receive. Besides, we have a patent-pending document management solution that makes sure no documents slip through the cracks," said Rishyasringa.
He added several companies in the US are using technology to disrupt this segment. "Capital Float is not only making access of funds to SMEs easier, but we are also creating data and insight that is unique," he added.
Another player in this segment is Innoviti, which recently raised Rs 30 crore from Catamaran Ventures and New India Investment Corporation of Canada, and has built a lending marketplace for credit distribution that brings lenders, buyers and sellers together. It also has a payment management system that reduces loss of revenue due to wastage and errors for merchants.
Innoviti's marketplace model has already been tested with two large cash-and-carry players in India. The uniqueness of the platform is that it validates the buyer (merchant/SME) for the sellers and lenders and they get access to short-term credit lending for seven to 14 days.
So far, the platform has disseminated about Rs 400 crore of credit to 10,000 SMEs in 20 cities annually.
Rajeev Agrawal, an Indian Institute of Technology (IIT)-Bombay alumnus, believes although everyone is focused on solving the customer's payment problems, little efforts have been made to use technology to ease out the payment issues of SMEs.
Just as SMEs are facing hurdles to get access to working capital, they are also struggling as the use of plastic money has increased. For instance, a merchant losses anything between Rs 3 and Rs 4 on every Rs 1,000 transacted using a credit card. For a merchant doing Rs 1,000 crore of card transactions a year, it means a loss of Rs 3-4 crore.
"The use of technology in solving the payment pain points for merchants has not been addressed so far. Our focus is to solve real world merchant-centric problem, be it in payment management or lending of working capital funds. With the increase use of plastic money and plethora of electronic instruments to manage, merchants are facing serious issues," says Agrawal.
Innoviti's SME lending platform is trying to solve the working capital requirement of merchants. "Today, for purchases, the credit is provided by the supplier, who runs the risk of collection and cost of lending. Most of the banks cannot reach this segment as its considered to be less viable," says Agrawal.
On the other hand, a plethora of players such as Paytm, Oxigen, Mobiqwik and others have emerged, who want to cater to retail customers and reduce their payment issues. New-age technology-based companies such as Innoviti, Pine Labs, and Capital Float have come up with models that ease out payment issues for SMEs.
Bengaluru-based Capital Float has raised $17 million in funding from Sequoia Capital, SAIF Partners, and Aspada. The company is also using its equity to finance loans from banks and other lenders. Its revenue model is a combination of interest and fees.
Also Read
"The SME lending market is massive in India and there is a huge under-served market of $200 billion that traditional lenders don't address. Plus, technology in the sector has not evolved significantly. Today's borrowers are dominantly online and this means lenders can target them online and use new technology and data to underwrite loans better and faster," said Gautam Mago, managing director, Sequoia Capital.
Founded in 2013, Capital Float has created a propriety platform to evaluate the financial condition of an SME and provide working capital requirements in about seven days, compared to a traditional bank that would take two months. At present, the company is working with all major e-commerce players - Flipkart, Snapdeal, Jabong, Amazon, Myntra, etc - small merchants, and business to business service providers. The company is a registered non-banking financial company.
"India has a huge SME segment whose lending needs have been ignored. Various estimates suggest about $200 billion funds are required by SME in India for their working capital needs. At present, this is mostly funded by loan taken from family and relatives. For Bank loans, the time taken is two weeks to one-and-a-half months. Since many have to focus on day-to-day operational issues, they do not have the time to stand in long queues at banks," added Sashank Rishyasringa, co-founder, Capital Float.
The company has created a platform that focuses on getting the details of the merchant and collection of documents in a way that's convenient to the applicant as well as the underwriting team.
"For the documents, we integrate with a number of third-party sources in order to fetch documents on behalf of the applicant so he or she doesn't need to provide them to us. This simultaneously reduces the load on the applicant, as well as increases the level of trust in the data that we receive. Besides, we have a patent-pending document management solution that makes sure no documents slip through the cracks," said Rishyasringa.
He added several companies in the US are using technology to disrupt this segment. "Capital Float is not only making access of funds to SMEs easier, but we are also creating data and insight that is unique," he added.
Another player in this segment is Innoviti, which recently raised Rs 30 crore from Catamaran Ventures and New India Investment Corporation of Canada, and has built a lending marketplace for credit distribution that brings lenders, buyers and sellers together. It also has a payment management system that reduces loss of revenue due to wastage and errors for merchants.
Innoviti's marketplace model has already been tested with two large cash-and-carry players in India. The uniqueness of the platform is that it validates the buyer (merchant/SME) for the sellers and lenders and they get access to short-term credit lending for seven to 14 days.
So far, the platform has disseminated about Rs 400 crore of credit to 10,000 SMEs in 20 cities annually.
Rajeev Agrawal, an Indian Institute of Technology (IIT)-Bombay alumnus, believes although everyone is focused on solving the customer's payment problems, little efforts have been made to use technology to ease out the payment issues of SMEs.
Just as SMEs are facing hurdles to get access to working capital, they are also struggling as the use of plastic money has increased. For instance, a merchant losses anything between Rs 3 and Rs 4 on every Rs 1,000 transacted using a credit card. For a merchant doing Rs 1,000 crore of card transactions a year, it means a loss of Rs 3-4 crore.
"The use of technology in solving the payment pain points for merchants has not been addressed so far. Our focus is to solve real world merchant-centric problem, be it in payment management or lending of working capital funds. With the increase use of plastic money and plethora of electronic instruments to manage, merchants are facing serious issues," says Agrawal.
Innoviti's SME lending platform is trying to solve the working capital requirement of merchants. "Today, for purchases, the credit is provided by the supplier, who runs the risk of collection and cost of lending. Most of the banks cannot reach this segment as its considered to be less viable," says Agrawal.