What has been the business in FY 2021 and what are the expectations for FY 2022?

The year 21-22 has been an extreme test for our customers and hence our business. The year has reiterated the adage that adversity reveals the best in us. I have been positively impressed by the deep resilience of the micro businesses and the tenacity of our team in the face of depressing market conditions.

We thought that the earlier year 20-21 was a tough year and we have managed with minimal setbacks, this once in a century pandemic. The year 21-22 started by upping the ante with the crippling blow to the economy through the second wave. The severe lockdowns and the fear that was drilled into our psyche has among other outcomes, materially pulled down the level of commerce among the micro enterprises.

Since funds are the lifeline for a business, we continued to keep our disbursements open and also extended top up of loans through the ECLGS program. This has brought welcome results, as the delinquencies of older pools have been kept within a reasonable level and the pools of new disbursements are showing solid repayments trends. The Portfolio markers show ongoing improvements. Compared to the earlier year, we expect to see in FY 21-22 over 40% increase in disbursements and Portfolio growth of over 25%. Our collection efficiencies have been in the 90%-95% on most months. A substantial part of our borrowers are regular (without any overdues) and their repayment rates are over 99% as used to be before the pandemic.

The year has also taught us how to keep caring and motivating our teams. The hard work we put into building a conducive corporate culture is now being paid back through the exceptional commitment of our employees. Our team has done wonders in the financial year. This has enabled us to grow while keeping delinquencies in check, in very difficult market conditions.

How much loan has been disbursed by Aye Finance in 2021 and plans for 2022?

The year that is to arrive is going to be a year of exceptional promise. Our micro enterprise customers will surely bounce back as business returns to normal (or even a new normal). We have an optimistic view of the year and to this end, we have opened up over 100 new distribution points to benefit from this bounce.

We are not going to lose the lessons that we have learnt in the last year. The frugal approach to managing expenses, the focus on high employee productivity and pervasive use of data science models to prioritise and optimise – these will be the themes for the coming year.

We have used the last year to get a deeper understanding of our customers and their supply chains. This will help us dovetail our offerings to our customer’s business needs.

Prior to the past Covid years, we were growing at over 50% CAGR. In FY22-23 we should be back to this growth trajectory. We have deliberately made aggressive provisions for possible portfolio losses in the past years. I hence believe that we will see a clear runway in FY 22-23 without the restraints or hangover of the effects of the disruption.

How is the Aye Finance business model helping MSMEs?

Our business loans are powering the transformation of micro businesses of India. What sets us apart from other players in the industry is the “assisted fintech- approach” we use to offer credit lines to this historically excluded segment. We have designed our customer acquisition process that mirrors the comfort of the Indian micro entrepreneur who is not comfortable transacting on the internet. We have chosen to set up low cost branch networks to deliver a high touch origination experience to them. At the same time, to ensure we maintain economies of scale of our small ticket size loans we have used cloud based business process engine and variety of Machine Learning algorithms, and optimally automated our underwriting and collections processes. This fusion approach has provided us among the lowest unit cost of loan origination for business lending in India, and that we became profitable within four years of operations is a validation of the success of this approach.

How convenient is it for MSMEs to apply for a loan? How does Aye Finance work?

We have presence in over 300 cities across 20 States to ease the accessibility of business loans for the micro entrepreneurs. We provide doorstep services, which means that our staff visits the business place and residence for all process requirements. All required information and photographs are captured in our digital application by our representative. Other than this, our documentation requirements are minimum and pricing is transparent. Only at the time of loan disbursement, to sign loan documents, the customer needs to visit our branch. We go a step further and have tied-up with insurance companies to protect the life and health of our customers to ease their and their families burden in times of unexpected exigencies.

What are your expansion plans for the year 2022?

Aye has been rapidly expanding its footprint to assure affordable credit is accessible to the historically excluded segment of micro enterprises. In the current financial year, Aye opened 100 new centres taking its presence to 311 branches in 20 States spanning the length and breadth of the country. We will continue on this trajectory in the coming year as well strengthening our presence and bringing a larger number of micro entrepreneurs into the folds of formal economy.

Can you please share some details about the investors and lenders of Aye Finance?

Our ambition to be a large scaled business has been ably supported by a set of large private equity investors and we have had marque investors backing us right since our first year of operations. We have raised five rounds of equity in the last seven years and most of the investors have invested into multiple equity rounds. This demonstrates their comfort with and commitment to our business. Our investors include global leaders – CapitalG (erstwhile Google Capital), the growth equity arm of Alphabet Inc., Elevation Capital, Falcon Edge Capital, LGT, A91 Partners and MAJ Invest.

A large lending business has to be proficient at raising debt funds and we have found considerable success in raising debt funds through a variety of debt instruments from leading global Development Finance Institutions (DFIs), banks and finance companies. Our debt providers include SBI, ICICI Bank, HDFC Bank, FMO, BlueOrchard, Triodos, Nabkisan and many others.

Give us a short brief about Aye Finance. What is the story behind its inception?

Aye 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 & optimally digitised phygital model.

As per a report released by the government, the credit deficit faced by the micro enterprise sector was estimated to be INR 16 trillion. And yet these 60 million grassroots businesses managed to make significant contribution to the gross domestic product as well as provided employment opportunities that were second only to the agriculture sector. The resilience of the sector despite the funding challenges they faced got me thinking about a solution that would work around the thin file and lack of credit history obstacles and address their credit woes. A detailed field research, which involved meeting over 300 micro-enterprises spanning 5 cities and 6 manufacturing industry clusters- lac bangles in Jaipur, brass casting in Aligarh, sports goods in Meerut, shoe-making in Agra, and shoes and garments in Delhi threw up the possibility of using a cluster based underwriting methodology for credit assessment of these grassroots businesses. In March 2014, Aye gave its first loan to a micro entrepreneur in the ladies’ shoes manufacturing cluster of Delhi, and since then we have multiplied our footprint to 311 branches and have offered business loans worth over INR 4600 crores to over three and a half lacs bottom of the pyramid businesses of India.

What products and services do the platform offer and who are your targeted customers?

Aye provides business loans, for working capital as well fixed capital requirements, to the underserved population of micro enterprises.

How do your products help MSMEs? What further support do you provide to your customers?

Aye caters to the credit needs of micro entrepreneur sector that has been historically ignored by formal lending channels due to non-availability of traditional business documents and lack of credit history. Aye designed a unique “Cluster based credit assessment” methodology to work around the obstacles of thin file and lack of credit history and banking footprint. Through the use of this innovative method of risk selection coupled with a range of AI/ML Algorithms and analytical scorecards, Aye has made credit a reality for the bottom of the pyramid businesses who had been kept out of the formal lending landscape.

Aye offers customised small ticket loan offerings to suit the unique requirement of this segment and has become a lender of choice for these grassroots businesses.

Along with providing economical credit to power the growth of their businesses, Aye also provides beyond financing support to this sector through its Not-for- Profit arm FAME (Foundation for Advancement of Micro Enterprises). FAME is focused on building the capabilities of these unorganized micro businesses to scale up and become competitive by providing non-financial support in the areas of market development, production knowhow and enhancing their business and financial management skills. Started in 2019, FAME has supported over 13000 micro entrepreneurs of the Dairy, Shoes Manufacturing, Sports Goods Manufacturing and Kirana Clusters.