In an interaction with Shweta Papriwal, Editor, IIFL, Hardika Shah, CEO & Founder Kinara Capital said, "From early on, we have built digital processes to make loan processing and payments easier. We use digital franking instead of typical stamp paper in all of our branches to save time and hassle for our customers".
To start with, tell us about Kinara Capital, its business model and products
Kinara Capital drives Financial Inclusion of small business entrepreneurs in India. We enable timely access to capital by providing fast and flexible loans without property collateral for upto Rs. 25 lakhs by providing a variety of business loans, such as asset purchase, working capital, line of credit, bill discounting, and more. We provide personalized customer service to the small business owner who typically has difficulties accessing formal lending options, such as getting a bank loan. We help our customers with the entire application process and with understanding their loan options by communicating in our customer’s preferred language.
As a fintech company, Kinara Capital disrupted the small business lending in India by creating proprietary algorithms and tech-enabled processes to address the needs of the MSME sector. With data-driven insights, we are able to help small business owners to move quickly through all the steps, including decision-making, business verification, psychometric testing and electronic disbursement. Our TAT is 80% faster than the industry average for NBFCs.
To date, we have disbursed Rs. 1728 crores in small business loans. Kinara Capital is headquartered in Bangalore with 110 branches across Karnataka, Andhra Pradesh, Telangana, Gujarat, Maharashtra, Tamil Nadu and UT Puducherry.
What is your inspiration behind founding the company?
My inspiration comes from the real-life struggles that I witnessed during my formative years in Bombay. I saw a lot of ‘jugaad’ from early on in my life with my mother who was running a small business, and with other relatives and neighbors who were trying hard to build their businesses. Many people with entrepreneurial leanings were stuck with no access to capital to either start or grow their business. Despite India embracing an open economy years ago, I still saw the same ‘jugaad’ years later as small business entrepreneurs were piecing together personal loans or still trying to borrow from friends and family to somehow catch a break.
I found this situation to be sad because small businesses are the real drivers of the Indian economy! They have the power to transform their communities with income generation and job creation. I was motivated to resolve this in some way by addressing the ‘missing middle’ gap between commercial capital and micro finance capital. While in business school, I had the opportunity to explore this further, and I started building new risk-assessment methodologies and ran a pilot in India before finishing business school.
The learnings and success of that pilot became the genesis of Kinara Capital. In 2011, I wrapped up my whole life and moved to India after having lived abroad for more than 20 years. India has a strong spirit of entrepreneurialism; it is one of the world’s largest economies with over 60 million MSMEs. The opportunity to make an impact in India by driving financial inclusion is immense. I am very happy and proud to share that the small business loans provided by Kinara Capital to date have led to over 65,000 new jobs created in the economy.
How has the lockdown Impacted your sector and consumers?
The economic impact of COVID-19 pandemic is far greater than anything we will see because it came with a velocity that was unexpected. Our first priority was to safeguard our customers and our employees. We immediately stopped in-person visits and moved our entire operations of 1000+ employees to work-from-home mode even before the first Lockdown was announced. Certainly, our customers were impacted with the Lockdown as this is affecting not only their lives but also the livelihoods of their workers. When RBI announced the Moratorium, we extended the same to our customers even though it was not mandatory for us to do so and there was no requirement for banks to extend the same provision to NBFCs which made it tough for us. Many of our customers did opt for the Moratorium but mostly, everyone is waiting to begin resuming their operations.
What are the few Innovations that Kinara has done on loan processing and payments front?
From early on, we have built digital processes to make loan processing and payments easier. We use digital franking instead of typical stamp paper in all of our branches to save time and hassle for our customers. Our disbursements to customers happen electronically within hours of approval. For customers, we have easy options available to make a payment via our customer mobile app, or on our website. Since the Lockdown, our customers are asking for new ways to make their EMI payments so Kinara Capital is accessible via an aggregator to over 400 apps to make payments easily via digital wallets or payment banks, such as PhonePe, Google Pay, PayTM, and others.
Have you set a new normal by improving overall functioning?
We made a seamless transition to remote working because we were tech-ready. In fact, we even moved our entire multilingual call center team to work remotely without any breaks in our service for our customers. We were already working on a cloud-based system and all employees have direct access to Google Hangouts, and needed access to company databases that they need to do their jobs effectively. Any extra tech requirements for employees was provided by us, such as Internet dongles or headphones for those who don’t have connectivity in their homes. I think the new normal is that we all had to get used to video meetings and creating some space to work from home but overall functioning didn’t require much adjustment from our end as we had invested in tech for our employees.
Why focusing on last mile NBFCs is important for RBI?
RBI policies for NBFCs have a direct impact on economic development. Last-mile NBFCs are often the first point of contact or the only point of access to capital for MSMEs. To focus on economic development, it is important to support the drivers of our economy. MSMEs generate livelihood for over 100 million people in India and contribute to nearly 50% of our exports and 30% of our overall GDP. Therefore, RBI can boost the economy with helpful support of the last-mile NBFC sector that works hard to drive Financial Inclusion of businesses.
How differentiated business models will survive the crisis?
Businesses exist to serve a need in the society so adaptation is the key to survival. We are seeing stories everyday of a new type of consumer demand for COVID-19 prevention products and many manufacturers are using their existing equipment and materials for a different output. Many traders are learning to go digital to better market their services locally and are now offering home delivery services. Businesses have to be willing to adapt to the changing circumstances. For the MSME sector, it means the ones who can diversify their product offerings for different sectors will have the best shot at surviving and growing their business.
You have been investing in technology, how do you plan to leverage this going ahead? How will this help to improve the quality of your portfolio, customer reach as well as profitability?
Firstly, our top priority post-Moratorium will be on supporting our existing customers. We already have 30,000 customers and as they begin to resume their operations, they will need our support more than ever. Secondly, tech combined with data-driven insights means that we can turnaround decisions and disbursements even faster for some types of businesses that are ready for growth. For customer reach, we will introduce new ways to make it easier for them to access and go through the application process by relying on digitization, such as online KYC and online underwriting. We will continue to provide personalized support at all levels while providing new digital solutions to our customers.
What would be the impact of recent announcements and schemes announced by FM to support the MSME and NBFC sector?
Certainly, the government recognizes the importance of the MSME sector. The recent push to increase manufacturing in India and placing restrictions on imports to boost local production are a clear indication that the Finance Minister recognizes this is a very important segment for economic development and it needs our attention.
However, the real need of the hour is to figure out the best way for MSMEs to stay afloat and still come out on the other side with minimum impact. Most small businesses lack the liquidity to survive months of disruption to their business. This is where last-mile NBFCs play an important role by providing timely access to capital to small businesses especially without taking property collateral.
Extending the Moratorium simply increases the burden on the MSMEs. All sectors of the economy will revive at different times. Considering, they will have different contraction periods, it is important to take differentiated offers and not just extend a linear time bound Moratorium right now. Instead, restructuring can apportion the increase in costs based on the individual borrower's capacity to come back to normalcy.
Demand for credit is already there and will pick up in 2-3 months. The reduction in rates can help in lowering debt costs for last-mile NBFCs so they can provide better options to MSMEs. Whether the newly announced measures will help depends on the clarity that RBI gives on NBFC classification and the banks’ willingness to lend to last-mile NBFCs.