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We want to be in 100 cities in the next 12 to 18 months: Gaurav Hinduja & Sashank Rishyasringa – Business Standard

Written by Alnoor Peermohamed

Bengaluru-based startup Capital Float, which lends to small and medium enterprises (SMEs), plans to grow its presence from 40 cities to a 100 cities in the next 12 to 18 months. While sellers on e-commerce platforms make up a large chunk of whom the company lends to, it says it will focus more on tier 2 and tier 3 businesses, which might be solely offline but have the potential to grow massively. Gaurav Hinduja and Sashank Rishyasringa, founders of Capital Floatalk to Alnoor Peermohamed in the company’s plans. Edited excerpts:

The e-commerce segment is fairly new and there’s bound to be volatility. How do you think that might impact your business?

Hinduja: E-commerce merchants are the core to what we do and it’s an important vertical, but we’ve also diversified outside.

We do loans to a lot traditional SMEs — brick and mortar, manufacturing and service type of organisations because that segment is 30-40 million, whereas e-commerce is 100-200 thousand. I think almost all sellers sell on all marketplaces. And when we underwrite the business, we look at a combination of things. Sales across marketplaces, and how does that look across his offline sales as well, because a lot of sell offline. We look at a holistic view of the business before we actually decide to give the person a loan.

Data on sellers is harder to come by in the offline world. How are you tackling that?

Rishyasringa: You’ll be surprised as to how much data is available on any business in India and that’s very much a big part of the IP we’ve built since the early days. I think what we’ve been able to do is build a lot of pipes for data sources such as Aadhaar, NSDL, and a whole host of other government and legal databases.

The borrower is also able to give us access to a lot of data that we can then use in deciding what terms and what kind of loan to give them. For example, social media is a very interesting input that we consider in our underwriting model.

On the online piece, yes there is some additional data which helps with the speed of lending. So today we give real time approvals to e-commerce sellers in 10 to 15 minutes.

What is your primary source of raising capital?

Hinduja: Like most financial institutions we obviously raise equity right, and we have raised a little over Rs 100 crore from some of the best VCs, but also we have raised debt.

What are your sort of default rates? How are you working to keep them low?

Hinduja: Ironically, a lot of the bank’s defaulters are not coming from the SME sector. They’re actually coming from large borrowers. A lot of what we do is the underwriting, through different data, and we do that to keep our credit costs, which are defaults, et cetera, really low.

Today they are very low, I’d say 80-90 per cent better than any NBFC that lends to SMEs out there. That said, it is still early days. This is a lending business at the end of the day, there are going to be defaults.

What do you think will happen when guys like Alibaba increase their focus in India? Where do you fit in?

Rishyasringa: B2B e-commerce has the potential to be far larger than B2C e-commerce in India. And we think what Alibaba has been able to achieve in China and in India with its SME base for exporters and importers is tremendous.

We are partners with Alibaba. You can infer from that, that we’re already active in the space and its part of our strategy.

How is this partnership going to work?

Hinduja: They’re going to look at us to help get more SMEs to become active Alibaba users. But at the same time a lot of their SME merchant base will require financing, whether it’s for domestic transactions, or cross border transactions. They will look at a financer that really has the speed and the agility to meet the SMEs requirements in that sense.

What are your growth plans?

Hinduja: We want to be in 100 cities in the next 12 to 18 months and obviously a lot of that growth is going to come from tier 2 and tier 3 towns. Because banks really don’t have a presence there.

While people and SMEs in the top 8-10 cities can still access a bank branch, bank branch penetration in those tier 2 tier 3 towns is almost negligible. I think that’s where we’ll see a lot of growth and through the make in India and e-commerce stuff you’ll see a lot of business growth in those cities as well.

What sort of regulatory hurdles do you see yourselves having to cross?

Rishyasringa: Actually in the financial services space I think we’ve got a very proactive regulator and what you’re seeing in these payment banks, small finance banks, e-KYC, I think these are all steps in the right direction and we obviously hope that we continue to see these steps.

News piece sourced from Business Standard. Read the full piece here.

Oct 24, 2018

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Why buying a big house is a bad investment

To take a trivial example, which of us ever sed undertakes laborious physical exercise except to obtain some advantage.

Oct 24, 2018

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Projections for the Future: Top 5 Small Business Trends in 2018

Thriving amidst difficult environments has never been easy for SMEs in India, but they continue to stand tall. Despite numerous challenges in the form of infrastructural constraints and lack of access to formal credit, they contribute to 8% of the GDP. Rightly called ‘the engine of growth’ for India, SMEs have scaled manufacturing capabilities, reduced regional disparities and balanced the distribution of wealth.

Small businesses are now being increasingly associated with innovation and employment, and the figures state likewise. The micro, small and medium enterprise(MSME) sector contributes to 69% of employment in India. With the growing penetration of technology into mainstream ecosystem, these industries are at the forefront of bringing the convenience of digitalization to the masses.

The Indian economy is expected to be a $5 trillion economy by 2025, and SMEs are cutting roads towards this goal. As we enter the first financial year post implementation of GST, some interesting small business trends are touted to play an important role for a smoother growth journey to global standards.

Here are the latest business trends that you can keep in mind while setting your objectives for FY 2018-19.

Business Trend 1: Rise of Online B2B Marketplaces

E-commerce marketplaces are gradually gaining momentum worldwide, and has branched out to B2B trading platforms. While this is still at an embryonic stage in India, there is no doubt that the potential it holds is huge. According to experts, the scope of the ecommerce B2B industry is six times bigger than the B2C industry, and is estimated to be worth $620 billion industry by 2020.

Companies such as Amazon Business, Alibaba, IndiaMart, Power2SME, etc. are popular online platforms that connect B2B buyers and suppliers to fulfill their business requirements. These digital platforms have helped small businesses surpass technical and geographical limitations to procure raw materials in bulk at reduced prices and also become official supply partners to large corporations. This is one of the hottest small business trends of 2018 that will present aspiring as well as budding entrepreneurs a level playing field with industry leaders.

Business Trend 2: Personalized Customer Outreach via Automated Tech

With the oldest of the millennials attaining 35 years of age this year, the target audience has shifted by a generation. For an age bracket that has been wrought in technology, this band of consumers need more than online communication. They seek a personalized line of contact when availing services from small businesses, with 60% of them choosing emails as a preferred way to establish this connect.

Since the millennial generation has the highest buying power in the market valued at $44 billion globally, this is one audience you don’t want to miss out on. You can target them by leveraging interactive videos, engaging images, and emails customized with these elements for varying demographics. The use of intelligent virtual communication applications will help you implement this in an efficient and cost-effective manner.

Business Trend 3: Easy Access to Business Credit with FinTech Lenders

The biggest hurdle for small business owners has always been financing. For a country with 50 million SMEs, there is an unmet credit deficit of a staggering $350 billion. Traditional lending institutions are limited by conventional underwriting that caters only to a certain strata of businesses. Lack of collateral, documentation and operational history have been crippling factors that prevented SMEs from qualifying for formal finance. This, in turn, pushed SMEs to the informal sector where the high interest rates charged by moneylenders fettered borrowers to a chronic cycle of debt.

But, FinTech lenders are shifting the narrative by leveraging technology and unconventional data points to provide affordable loans to small businesses as well as consumers. With customized credit products and zero collateral requirement, these digital financiers bridge the gap that had long existed in the market.

Business Trend 4: Big Data to Drive Operations and Decisions

‘Is Big Data too big for SMEs?’- is a question that requires intensive analysis, depending on the goals that define the small business and its operations. Many SMEs see big data projects as unapproachable and sophisticated, owing to the difficulties inherent in understanding huge datasets. However, studies reveal that a calculated use of big data has a colossal impact on the growth of small businesses and has been the chassis for many popular business models.

This business trend is expected to revolutionize the SME sector by speeding its pace of development. New-age digital lenders do finance technological incorporations if it shows a direct correlation to business growth, so you needn’t worry about the funds for investing in Big Data. Check out Unsecured Business Loans for more details.

Business Trend 5: Shifted Focus on IT Security

2017 saw one of the largest cyberattack worldwide, the WannaCry ransomware attack, that caused the encryption of data on computers running the Microsoft Windows operating system and risked the exposure of sensitive data of companies in over 150 countries. Though the attack was stopped within a few days of discovery, the total damages were estimated to be in billions of dollars.

The IT industry in India contributes to a key part of the country’s economy, a significant number of enterprises will begin to invest in dedicated security systems that focus on detection and response, a shift away from conventional systems that were based on prevention. Security enhancements offered by SaaS/Cloud based platforms have become more affordable for small businesses to establish a dominant architecture for data integrity management.

Oct 24, 2018