Shachindra Nath, Founder & MD, UGRO Capital, says “UGRO is now becoming India’s largest, most dedicated data tech driven MSME financing company and we keep saying MSME accha hai, which means the underlying MSME economy and especially the micro enterprises economy is becoming so robust and the recent Crisil upgrade to “A” is a reflection of that. ”
There is a rating upgrade on your paper. Can you talk to us about how meaningful this is and for an NBFC in general when rating upgrades happen especially from a reputed rating agency? How does it improve the business model?Shachindra Nath: We already have a rating from India Ratings, which is A stable. We were A minus from Crisil with a positive outlook. So, now Crisil has also upgraded us to A. In the broader terms, given that we already enjoyed a rating of A, I do not think it meaningfully changed anything but two of the largest and most respected rating agencies in a very difficult market environment for NBFC and especially Crisil upgrading us is a very big achievement and milestone. But unlike the public market and the reaction which you keep seeing on the capital market side, the lenders and the rating agency look at the fundamentals of the business and they are not impacted by the noise around the market. So, fundamentally UGRO is now becoming India’s largest, most dedicated data tech driven MSME financing company and we keep saying MSME accha hai, which means the underlying MSME economy and especially the micro enterprises economy is becoming so robust and this upgrade is a reflection of that.
The other thing is that you should always remember that we divide the lending universe of the NBFC in two parts, lenders which are supported by a very strong parentage, which have a large group backing them, where the rating agency and both liability side take the comfort from the parentage itself. If you have a large Indian conglomerate or a business house who has an NBFC, actually the underlying business performances look much less; the parentage itself drives the rating and that creates an artificial arbitrage. So, there are entities which are rated double A plus or a triple A just because they have a strong parentage, whereas we have to work much harder to get to the same level of rating.
We have to prove ourselves every day and we keep doing that. There is no complaint about it. But the difference between what I call a capital owner driven business versus an institutional platform, every passing day, we are getting nearer to be treated at par with some of the largest NBFCs in India.
But there is also a conscious kind of a strategic move, which I am observing in the last few months from the company which you represent, in order to kind of diversify the borrowing mix very nicely. Can you talk to us about that part of the conscious strategy and how is your borrowing cost right now after you have done some recent fundraisers as well?
Shachindra Nath: Sometimes, the compulsion becomes the beauty of the business or the constraint actually drives a strategy which plays out very beneficial in the long term. Even we started as an independent company, wherein 100% of our ownership was institutional in the form of PE and long only investors. We did not have the backing of a parentage, we knew that we cannot have one, two or five large banks lending to us. So, by design from day one, we created a diversified lending strategy or borrowing strategy and that is the reason why we became India’s largest co-lending partner NBFC for banks.
So, almost 45% of our book is off balance sheet, which put less strain on our liability on the balance sheet. We have 60 plus total lenders on our balance sheet and almost every bank in India and every large DFI globally have now lines to us. It is no small feat to achieve in a period of four years, when large institutions like FMO, ADB, investors like IFU, give money to us, it actually is in culmination of almost three years of effort.
When large public sector bank and private sector banks give us continuous line and they are scaling up, that is very hard work. But for us when RBI is saying that the dependence of NBFC on bank borrowing should be reduced, we already have very less bank borrowing, almost 35% of our borrowings is from banks and rest is diversified. So, we are benefiting at this point of time from the constraint from which we started and which forced us to build this diversified liability strategy of off balance sheet and on balance sheet is playing out extremely well for us.
What about the new social impact research report which you have conducted with other industry majors, which dissects how the borrowing mix is changing and how people are availing credit now, what are they using it for, the average age of borrowing, how that is transforming and also women borrowers. Can you give us a gist of the recently unveiled report?
Shachindra Nath: There are two things. We were seeing that mainline domestic lending institutions, especially the banks, have this notion that MSME borrowers are very weak borrowers and this has stemmed from the fact that they have seen very bad portfolios over the last decade or so.
That is why along with ,DNB now we would be publishing a report every six months which actually talks about the health of micro enterprise borrower and that has been done basis our customer base and as well as the industry report which DNB actually accumulates and we have been able to demonstrate that a sample of 25,000 plus customer, every time they are availing credit facility from us, the health of their business is growing. The industry only looks at the loan data portfolio but we are demonstrating the health of these businesses improving on a year on year basis. So that is a very good sign.
I keep saying that what you have seen in the consumer financing business is what you will see in this decade in the MSME financing business. Second, we also publish what we call an impact report. So for an entity which is roughly around Rs 8,500 crore of lending for one lakh plus customers, what kind of impact we have been able to create? Whether it is in the form of new employment, women borrowers, new entrepreneurs which are generating MSME businesses or overall economic output which is getting created.
So, nine SDG goals we cover and on every account, we are seeing massive impact being created. Our plea to most of the mainline lending institutions is that both from the economic front and health of the business as well as what you can create as an impact in our country, MSME financing is in a very good place. We recently launched a programme on Women’s Day for female borrowers because we are seeing the increment in quality of credit and now this trend of women actually coming up and trying to set up a small business is now all pervasive.
We have never seen in my life in tier II, tier III, tier IV towns small businesses run by female entrepreneurs who have may not be as visible as what you see in some of the large startups but at every strata of the society, we are seeing that the level of equality is getting improved with every passing day. If the lending institution creates more programmes for them, our country would be in a very good place in the coming years.
