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Aye Finance: MSME financing made easy

The fintech’s cluster-based credit appraisal approach and phygital model bridges the gap between MSMEs and organised lending norms

Sanjay Sharma, managing director, Aye Finance

Aye Finance is a new-age finance company that provides secured and unsecured small business loans to small and micro enterprises across India. It aims to solve the challenges in funding micro, small and medium enterprises and bring them into the mainstream of the economy.

“With over 60 million micro-enterprises operating in India, this segment represents a vital engine for job creation and economic growth. Ironically, these micro-entrepreneurs are excluded by strict hard collateral and formal documentation requirements, typically the primary decision factors in the traditional credit risk assessment process,” says Sanjay Sharma, managing director, Aye Finance.

Sharma says the startup differentiates itself by creating a technically enabled process that builds credit insights through a variety of available business and behavioural data. This effective credit appraisal coupled with the use of modern workflow automation, and a small but engaged workforce is helping bridge the gap between the MSMEs and organised lending. The cloud-computing architecture enables flexible delivery of customer service at an affordable cost. “It is part of our vision to leverage modern technology for multiplying the productivity of field force, early detection of frauds and lowering operational risks,” he says.

In April 2014, Aye Finance, headquartered in Gurugram, gave its first business loan to a micro enterprise located in the footwear manufacturing cluster in West Delhi. “Today we serve the credit needs of over 100 clusters in manufacturing, service and trading industries in 311 cities and have made affordable credit a reality for over 3,50,000 micro enterprises,” says Sharma.

He claims his venture is the only scaled, pan-India player providing unsecured small-ticket business loans to a large credit-starved micro-enterprise segment. “Aye has cracked this difficult- to-lend segment with its unique cluster-based credit appraisal approach and optimally digitised phygital model,”says Sharma.

Aye Finance is equity-funded by three venture capital funds—Accion International, SAIF Partners and LGT Impact ventures. It also has over a dozen providers who extend their debt funds for its MSME finance business. “Since our inception in 2014, we have raised six rounds of equity from global leaders CapitalG (Alphabet’s independent growth fund), Elevation Capital (erstwhile SAIF Partners), Falcon Edge Capital, A91 Partners, Lightrock and MAJ Invest. Majority of our equity partners have participated in multiple equity rounds showing their commitment to our mission as well as confidence in our business model,” he says, adding, “We have continued to have a well-diversified portfolio on debt arrangements with leading impact investors, banks and financial institutions. And we have continued on our track record of generating profits for consecutive four years, including the pandemic impacted year 2020-21.”

Aye Finance has been a leading player in developing AI and ML models to further ease the access of credit to the MSME sector and has deployed advanced AI/ML solutions in most of its critical business processes. Says Sharma, “Our models predict critical customer behaviour at a very granular level which has helped us improve our lending decisions, brought improved efficiencies in our customer acquisition and collection processes, along with allowing us to offer customised solutions as well as up-sell offers to our target customer segment.”

Prior to the Covid years, Aye Finance was growing at over 50% CAGR, says Sharma. “I believe that we will see a clear runway in FY 22-23 without the restraints or hangover of the effects of the disruption,” he summarises.

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