Loan Frame is a silicon-valley style Fintech company focused on small and medium enterprises (SMEs) lending in the Indian subcontinent by building India’s largest technology enabled SME lending marketplace. Loan Frame is providing a technology solution to one of India’s long standing economic problems: availability of credit to Indian SME’s.
Loan Frame aims to provide the right credit in an easy and friendly manner to SMEs. Customers will benefit from the right product from the right lender where they can get the maximum loan amounts at the lowest rate in the most efficient manner. Besides, it aims to provide an efficient lending experience for borrowers and make them easily accessible to lenders.
SME WORLD interacted with Shailesh Jacob, Co-Founder and CEO, Loan Frame
SMEs Finance has been a major issue stunting the growth of the sector. What are prime reasons for this state of affairs?
Shailesh Jacob: Indian SMEs are not the top priority when it comes to credit disbursal from financial institutions.
Some Major reasons are listed as under–
- SME promoters don’t always disclose the full extent of their financials and thus reduce their eligibility for loans.
- SME Promoters are good in managing the business but at times there is nobody to guide them for their finance needs and help them optimize their balance sheets.
- The current agent networks are not fully aware of various available products and policies in the market.
- Most of the bank especially new age NBFCs/private sector banks have restricted themselves to max 150-200 locations although their bank network is spread to 1000+ locations.
- Bad Loans Recovery laws are not balanced and more tilted towards borrowers which is one of the reasons that banks are averse to take risk to MSME.
At Loan Frame, we are dedicated to bringing right credit to right people in an easy and friendly manner. We are committed to help SMEs scale up their business by providing them with a wide array of loan options to choose from.
Institutional finance eludes the sector; is the rising NPAs of the banks responsible for their lack of enthusiasm?
Shailesh Jacob: In the case of both the public sector and private sector banks, the write off from the NPA is a cause of concern. However, it is important to note private sector banks have limited exposure to these MSME loans as a whole and therefore the portion of NPAs written off do not have any significant impact on their books.
Some banks are primarily focused on mid and large corporates. Lately banks have started to focus more on the SME sector given the poor performance of their corporate books
SMEs have been neglected of required finance for very many years and there no valid reason for the same. They rely heavily on traditional lenders or institutional lenders who charge a hefty interest on the money borrowed.
What is your vision for improving the SME finance ecosystem in India and how non institutional finance or alternative finance routes can cope with the crisis?
Shailesh Jacob: SMEs are the backbone of the Indian economy. According to a recent report, the sector consists of 36 million units, as of today, and provides employment to over 80 million persons. The Sector through more than 6,000 products contributes about 8% to GDP besides 45% to the total manufacturing output and 40% to the exports from the country.
It is concerning to see that 90% of these SMEs don’t have access to any institutional credit. It’s a very complex problem because each SME is unique and their business need is also unique. It is not only that the sector is underpenetrated from funding perspective, but also that there is an urgent need of right credit.
With the advent of new technology and emergence of alternative finance market, there are now new solutions for the SMEs to seek credit. These new age platforms have catalyzed the process that previously took several weeks. The alternative lending industry is trying to alter small business lending process by increase transparency as well as lower the cost of booking loans.
Loan Frame is India’s first-of-its-kind SME financing marketplace that offers a portfolio of over 50 SME loan products, to cater to their varied requirements. The company utilizes cutting edge technology and innovation to fast track the borrowing process and get the best possible proposition for the SMEs at most competitive interest rates
We here are creating financial models which will help in accessing the borrower’s profile on new data points outside traditional bank statements and financial statements such as vintage, type of industry, transactions with principals/anchor etc
What is Loan Frame’s SME profile? Are your lendings sector specific? What are the basic parameters required by an entrepreneur to avail your funds?
Shailesh Jacob: Loan Frame is India’s first SME lending marketplace that offers the entire portfolio of SME loan products, to cater to their varied requirements. We have over 50 products to offer as against any of its peers who have 2 or maximum 3 service offerings. We customize loan products to the actual financing needs of an SME.
We cater to a wide variety of sectors like retail, manufacturing, self-employed, pharmaceuticals, IT, services and specializes in some core sectors like health and FMCG. Our solutions are tailor made, to suit the specific requirements across business and sectors.
We seek minimum documentation for loan approval. An entrepreneur wanting to avail funds need to showcase 2 years of business stability. An ITR of 2 years with Profit and 6 months banking are required for application of loans.
There is a yawning gap between demand and supply. How the private funding initiatives can help in narrowing the gap?
Shailesh Jacob: A report by the International Finance Corporation (IFC) in Nov 2012 analyzed that the total financing demand in the SME sector is of Rs. 32.5 trillion. Traditional lenders usually prefer collateral based lending and look for at least three years of profitable track records. Such expectations from the SMEs make it difficult for them to get a loan. Additionally, they charge a very high interest rate. The major reasons for creation of this gap are information asymmetry which exists in Indian SMEs, the family-owned nature of Indian businesses, and lack of information regarding tapping the right kind and source of finance.
In the last five years, the new-age digital organisations and technology are redefining the service sector in India. The working capital is the lifeline of SMEs and it requires it in abundance to grow and prosper at an optimum level and to ramp up its infrastructure in the next few years.
The mining of digital prints and using Big Data analytics have helped digital lending platforms to do a better job of lending and financing under a robust system. It’s not surprising that SMEs are now relying on such digital lending platforms for timely finance so that they can make the most of business opportunities.
At Loan Frame, we are committed to SME financing. We are committed to empowering them to scaling their business and contribute to the India growth story.
The article was authored by SME World Bureauon April 17, 2017