MSME cash flows can be erratic; lenders must know: Flexiloans.com's Jain

We don't set up physical branches, and this allows us to reach more locations compared to the larger banks and NBFCs, he says

FlexiLoans.com, a lender to small businesses starved of credit from legacy institutions, uses digital tools to make good the lack of transparency and thin files of borrowers. The firm intends to hit an annualised disbursement of Rs 5,000 crore, and has set an internal target of Rs 10,000 crore for the next three years. RITESH JAIN, co-founder of Flexiloans.com, spoke with Raghu Mohan in a telephonic interview. Edited excerpts:

Now that the Reserve Bank of India (RBI) has tightened funding norms, how do you see growth from here?

The RBI has raised concerns about small ticket-size lending, particularly personal loans under Rs 50,000 or Rs 1 lakh. But we focus on lending to MSMEs (micro, medium and small enterprises), which is supported by schemes like Mudra and e-Credit Guarantee Fund Scheme for Micro and Small Enterprises. While there may be restrictions on personal loan lending, MSME funding remains relatively unaffected. Initially, there was some confusion, but once we clarified that we specialise in MSME lending the situation improved. 

What sets FlexiLoan­s apart from banks and NBFCs in this segment?

We don’t set up physical branches, and this allows us to reach more locations compared to the larger banks and NBFCs. We operate in over a thousand cities and have access to 15,000 PIN codes, and typically provide loans under Rs 20 lakh. Banks often categorise loans in this range as personal loans or retail loans. Our lending approach is cash flow-based rather than asset-secured. We’ve been profitable at a relatively early AUM (assets under management) compared to our peers. As of today, we get around 400,000 people applying to us on a monthly basis. Almost all e-commerce ecosystems and payment ecosystems like PhonePe, Google Pay and Paytm, among others, have partnered with us. We have more than 100 partnerships as of now and the second largest MSME platform in the country.

Can you throw light on credit evaluation and underwriting?

We assess cash flows by reviewing bank statements and GST (Goods and Services Tax) returns, whereas banks often require secured assets. Our technology and process efficiency enable us to offer quick loans with minimal documentation – typically just three documents: A bank statement and business KYC details. Our entire credit underwriting process is digitised; the proprietary credit analytical tool helps to quickly assess the creditworthiness of borrowers, and the loan decision is communicated in 15-30 minutes. Our USP is to disburse loans within 24-48 hours. Most people take 30-40 days to get a loan in this segment from other lenders. We do a lot of co-lending with banks. About 40-50 per cent of our book is through co-lending. We provide under Rs 10 lakh loans and 70 per cent of our business is concentrated in the Tier-II and Tier-III cities and beyond.

How have you managed to succeed in cash flow-based lending even as traditional lenders struggle?

Banks face challenges with cash flow-based lending for high ticket sizes. For loans above Rs 50 lakh or Rs 1 crore, relying solely on cash flow data can be risky. Banks often secure these loans with collateral. We, on the other hand, focus on smaller ticket sizes where cash-flow lending is more feasible. Banks may find small ticket size lending economically unviable due to the cost of branch operations, which makes it less practical for them. In case of default, we follow the standard collection processes, including contacting customers. And legal processes.

Do you think delayed bill settlements remain an issue?

The mandate is clear: Companies should settle MSME bills on time. However, some sectors and clients still experience delays. This is why it’s crucial for lenders to recognise that MSME cash flows can be erratic. We offer supply chain and invoice-based financing to address this. In our invoice discounting product, where payments come from large companies, we rarely see delays: 99 per cent of the payments are on time.

What is your growth projection for the next three years?

We manage more than Rs 2,000 crore in AUM, including co-lending with an annual disbursement run rate of over Rs 4,000 crore to more than 1.5 million registered users. We have disbursed more than 100,000 loans. By the end of this year, we aim to hit an annualised disbursal of Rs 5,000 crore. Our internal target for the next three years is to exceed Rs 10,000 crore. Our last fundraising round was about 18 months ago.

We raised approximately $30 million from existing investors and from marquee global investors.