SAIF Partners and Accion announced co-investments in Aye Finance, an India-based lender that will serve thousands of profitable micro, small, and medium enterprises (MSMEs), which are often locked out of both traditional microfinance and commercial capital. Accion made its investment through Venture Lab, a $10 million initiative dedicated to providing seed capital and management support to innovative startups expanding financial access to the poor and underserved. SAIF provides seed, early, and growth stage capital for emerging companies in India and China. For over 13 years, it has been investing in India, and its portfolio includes a number of financial institutions. SAIF continues to partner with strong teams and pursue innovative business models across sectors and stages of investments.
“MSMEs represent a highly underserved ‘missing middle’ market in India,” said Accion President and CEO Michael Schlein. “Too small for commercial finance and too large for traditional microfinance, these entrepreneurs must make do without the working capital they need to expand their businesses, buy bulk materials, or hire new employees. Aye Finance will address that ‘missing middle,’ providing borrowers with the capital that all businesses need, no matter their size. Ultimately, this access to credit will help more than the MSMEs – it will also benefit the clients and employees who rely on these entrepreneurs, and the local economies that grow along with successful enterprises.”
The debt gap for MSMEs in India is estimated to be $198 billion, and is increasing at 11 percent per year, according to a report by Intellecap and the International Finance Corporation. Aye joins a number of actors attempting to serve this sector, alongside the Indian Government’s renewed focus on supporting MSMEs. By formalizing the lending process and offering secured loans as low as $1,000 at market rates, Aye Finance will address an important need, and help India’s burgeoning economy on its growth path.
Aye Finance, based in northern India, was founded by two veteran bankers, Sanjay Sharma and Vikram Jetley. With the majority of India’s lending based in the southern states, India’s northern region is marked by sizable levels of poverty and an unorganized sector of informal moneylenders charging exorbitant interest rates. Aye has seen tremendous demand for its services since launch, opening 4 branches in the last 6 months, and has already financed over 300 micro businesses. Aye Finance’s clients represent a number of industries – including shoemaking, garments, textiles, leather, auto components, and others.
“By getting to know these businesses that ‘cluster’ together in specific neighborhoods or districts in urban areas, we believe Aye can uniquely acquire and assess customers in a low cost manner that mainstream financial institutions have so far found uneconomical. This is a subtle, but powerful innovation that will transform the approach to small businesses’ finance,” says Vishal Sood, Managing Director, SAIF partners.
Sanjay Sharma, Managing Director, Aye Finance said, “The 40 million organized micro-businesses are the fastest growing industrial segment, nourished by the aspirations of the Indian working classes. We offer much-needed loans and financing to micro-businesses through our insightful, segmented origination processes. Our use of new-age mobile and cloud computing lowers the delivery cost and our understanding of industry segments continue to attract a rapidly growing and loyal customer base.”