MSMEs or Micro, Small and Medium Enterprises are considered the growth engines of the Indian economy, contributing nearly 30% of gross GDP, 40% of national exports and employing over 100 million people. MSMEs have been a key focus area for the government of India, and a slew of initiatives have been introduced to aid MSMEs to function more smoothly under the Aatmanirbhar Bharat Package, which covers employment, credit guarantee, capital subsidies, entrepreneurship and technology support.

One of the longstanding challenges that Indian SMEs and MSMEs have faced and continue to face is access to credit. And mitigating credit access is a key priority as outlined by senior government officials like Union Minister Nitin Gadkari.

Mumbai-based fintech U GRO Capital is out to solve this bottleneck using the power of data and analytics. Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital is bullish about the power of technology to address the credit gaps that MSMEs face in India. Born in Varanasi and educated as a lawyer, Nath began his career as a commercial trainee, spending many years in the carpet industry and travelling extensively across rural India. He eventually moved into the financial services space where he has a wide range of experience with startups, insurance companies, asset management entities, capital market and lending institutions. His collective experience in finance and first-hand tryst with the grassroot level challenges in rural India led him to the path of building an SME lending business. U GRO Capital today is focused on addressing capital needs of small businesses in healthcare, education, chemicals, food processing/FMCG, hospitality, electrical equipment and components, light engineering and auto components.

Nath says, “We want to finance MSMEs in India and acquire a 1% market share. To us, this is an exciting opportunity given the variety and number of small businesses India has in addition to the government’s focus on ensuring cash flow to these businesses. We want to bridge the gaps in credit disbursal using emerging technologies like AI.”

(Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital)

Already, U GRO Capital is building a deep moat of financial products and solutions driven by emerging technologies. Subrata Das, Chief Innovation Officer, U GRO Capital explained that the application of AI/ML, blockchain and cloud are leading to the application of predictive sciences, OCR, recommendation systems, RPA and multi-lingual bots in financial services. Specifically, the startup has designed a zero-data loss architecture, where every little piece of customer data is mindfully applied to develop relevant financial products and solutions. API partnerships with banks enables access to bank statements, tax reports, credit bureau filings that are eventually converted into data that the machine can learn from. This helps them process loan applications and arrive at an in-principle decision in less than 60 minutes.

U GRO caters to specific SME sectors by using advanced knowledge of these sectors to create insightful loan products. This is done utilising a wide network of data points, machine intelligence, statistical and predictive modelling. Their first flagship offering was the GRO Smart Business Credit Card, launched in association with SBM Bank India and powered by RuPay and EnKash. Some of the offerings include paperless opening of an FD, withdrawal of up to 90% of the card limit, usage across any PoS machine.

It’s one thing to make credit available to small business owners, it’s another to enable them financially to accept large orders with the confidence that they can deliver those orders on time and within budget. MSME lending has to transform from physical collateral to cash-flow based. This is what U GRO is actively trying to address with its latest association with the GeM Sahay.

Government e-Marketplace (GeM) for MSMEs has been revolutionary in India’s public procurement, with more than 18 lakh MSME sellers listed across over 35.83 lakh products and 179 service categories, as of June 2021. The seller count has doubled from 9.44 lakh as on January 2021, reiterating the surging popularity among small businesses. Providing tools like e-bidding, reverse e-auction and demand aggregation it creates highly favourable conditions for the involved stakeholders. This is the reason why GeM has become the largest e-commerce marketplace in the country. While creating tremendous business opportunities for the SMEs, the platform has also integrated a financing program ‘GeM Sahay’. An Open Credit Enablement Network (OCEN) development ‘Sahay’ has recently been operationalized and holds potential to transform the SME ecosystem. It is an amalgamation of multiple digital innovations like UPI, eKYC, eSignature and Account Aggregators (AA). The platform promises an enhanced degree of financial inclusion for the relatively underserved small businesses.

In late May, U GRO Capital became the first lender in the country to successfully record invoice discounting transaction on GeM Sahay. The platform is also associated with financial institutions like SBI Bank, ICICI Bank, HDFC Bank, Axis Bank, IDFC First Bank and Bajaj Finserv. GeM Sahay leverages account aggregation led consented data access and the integrated loan service providers’ unique credit offerings. This allows the small business borrowers on GeM, to gain access to personalized financing options to cater to their working capital requirements.

GeM Sahay will help the smallest of businesses, in the remotest of locations to gain access to timely credit allowing them to grow at a rapid pace. The platform is a token of how the next wave of digital disruption has shrunk the world and that geo-limits do not have any meaning now, when it comes to financial inclusion, added Nath. For instance, if the Indian Railways seeks to buy stationery from a supplier, they can do so through the GeM Sahay platform. The machine learning models, trained on a diverse range of datasets including purchase history, credit history and GST, present a suitable list of suppliers to fulfil this order. U GRO initiates the process of supplying working capital to the eligible supplier to fulfil the order in the given time. Unlike earlier, where a small business owner would have to verbally validate his company’s financial health, the platform pulls up all the relevant data to accurately paint a picture of the supplier’s real time financials. Moreover, the arduous task of maintaining paperwork is completely mitigated, as the platform can aggregate the necessary data in real-time whenever required.

While GST compliance initially was labourious, Nath believes it is one of the most vital data sources for MSMEs in India. With nearly 70% of businesses joining the formal economy following the introduction of GST, what it has also led to is opening up avenues for small businesses to procure capital with ease.

“Through our platform, capital gets sanctioned in a matter of minutes. Being the first lender to disburse a loan on Sahay, is one of the critical milestones in our business journey as we expect this line of business to contribute significantly in its first year of operations,” added Nath.

This technology platform can be adopted by private enterprises, as their payment and accounting structures are typically complex and time consuming. But this can only happen with more awareness and faster digital adoption among small businesses. “Earlier, workers would have to spend up to Rs. 20 per transaction, while transferring money to their families in hometowns. Today, UPI has completely changed that. I believe we’re just seeing the start of a massive financial revolution that is aimed at widespread inclusion, and this requires a shift in mindset as well.”