Disrupting Credit in MSME Lending

Abstract

Aavas Financiers Limited is is engaged in the business of providing loans, primarily in the un-served, unreached and under-served market. AAVAS provides loan to customers belonging to low and middle income segment in semi-urban and rural areas. These are credit worthy customers who may or may not have the income proof documents like IT return, salary slip and hence are financially excluded by other large housing finance companies and banks. MSME Lending is at inflection point and can be the next engine of growth. A significant barrier to growth has been the lack of adequate and timely access to formal credit which has constrained its growth. The objective of the study is to explore opportunities in Retail MSME Lending & develop a comprehensive strategy to tap untapped, unbanked and underserved MSME Segments in geographies with low competitive intensity. Both quantitative and qualitative approach was followed while making the product. Quantitative was related to understanding the scope of MSME sector, scope of the industry chosen (Homemade Food Products Industry), scope of MSME within the industry, bifurcation of the cost and revenue of the industry. Qualitative was related to analyzing the above data and to understand the flaws within the data and to understand the future prospect of MSME within the textile industry. Industry specific data was collected from primary sources and therefore was analyzed on its correctness. A total of 48 interviews were conducted to understand about the industry. The food industry is ever growing industry. The demand is increasing is not only in metropolitan city but also rural cities. The current system fails to assess credit worthiness of a MSME businesses as majority of the transactions are in cash. Hence the product was designed to tap underserved and unbanked food industry MSME.