Aishani Sharma
Case Western Reserve University - Weatherhead School of Management
Chris Laszlo
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Inspired by Dr. Mohammad Yunus's Grameen Bank, Aye Finance Pvt. Ltd. was incorporated to provide micro finance loans to businesses within India. The purpose was to uplift these business and to improve the well-being of the companies, the owners and their employees. The company has devised ways to extend credit through their cluster chain approach and cloud based computing infrastructure.
Aye offers business loans to Manufacturing, Trading & Services, and even Dairy sectors. The Company segregates the businesses they lend to, into “Industry Clusters.” A cluster is a set of businesses that make the same or similar product. Aye’s understanding of each specific cluster and the entire supply chain ecosystem allows it to identify creditworthy clients and approve and disburse loans more quickly, and at lower rates than competing sources of finance. It assesses a potential borrower’s creditworthiness, knowing what the typical financials of the business in the specific cluster should look like and what reputation the prospective borrower has among peers and partners.
"Our customized appraisal techniques for each industry and cluster helps us serve a vast majority of customers who fall out of the purview of traditional financing due to their strict and non-flexible credit norms." - Sanay Sharma, Managing Director
Most small and medium sized local businesses aren't capable of maintaining books of accounts. They usually have loose bills to account for their transactions. This makes it difficult for financial institutions to extend credit for further expansion.
Aye comes in working on low operating costs by leveraging cloud based computing infrastructure and work flows integrated into its mobility platform. At the back end, the company uses business rules and data analytics to identify good customers. In order to identify outliers they use a cluster based engine and to identify repeat customers, they use a psychometric scorecard.
As a consequence the Company disburses about 6 loans per month for each of its field loan officers, while similar finance companies in organized space deliver 1.5 to 2.
Sanjay Sharma, after a distinguished thirty years in leading banks and financial institution in India and overseas, decided to return back to India in 2009 to focus his energy on giving back to the society. He joined a leading micro finance institution in Bangalore. After his one year stint, he realized that most of the loans provided to poor individuals were solely used for consumption purposes and for cash flow management and hence did not end up creating lasting productive assets. While these offerings were socially meaningful, they were not creating a paradigm where the poor could move towards a better economic situation.
He thought that by providing loans to micro-businesses instead of individuals, he could improve the level of their productive assets of these businesses. This would improve the well-being of the owners and their employees who belonged to the bottom of the pyramid.
Micro businesses in India are highly fragmented - about 50 million enterprises, but only 37% of them account for the country's GDP. The businesses employ close to 120 million workers, making it the highest non-agricultural sector in terms of employment creation in India.
Sanjay then began to research six such industry clusters around Northern India and derive a methodology and design for the best way to extend business loans for the micro-business. The initial team of 11 people disbursed their first business loan of $1,500 to a shoe manufacturer in Delhi of March 2014.
Aye finance was founded with a commitment to enable the inclusion of micro and small scale enterprises into the mainstream of the economy, and empower its customers, who are not technologically savvy, to adopt new payment methods. They have partnered with a leading bank to introduce Unified Payments Interface (UPI) based collection method to help customers make their EMI repayments conveniently.
The micro-businesses use the funds in a number of ways. Most of them optimize their working capital and scale up by investing in plant and machinery. The customers have witnessed an increase in revenues because of the excess capital invested in a larger labor force and machinery. Some customers have used the funds to repay high cost debts from moneylenders and unorganized credit committees.
Aye goes the extra mile by going beyond providing reasonable credit to business owners. Aye provides the loan repayment data to the credit bureau agencies in India. Through this the company aims to build and improve the micro businesses formal credit ratings in the organized market. Furthermore, in order to assist micro business owners, the company has devised a customer-facing utility app. This app enables customers to maintain records of their transaction over their phones. Many customers have been grateful for this app, as they have been able to learn to be more accountable during the daily course of business.
During the interview the co founder expressed an interest in conducting a social impact foundation study in this financial year to formally evaluate the impact that the company is creating.
"Over the years the company was not only able to improve the micro businesses services but also help their customers keep up with the dynamic external market and become part of the digital revolution." - Sanjay Sharma.
Aye started operations in 2 states and now serves in 10 Indian States through its 72 branches. From disbursing some 400 loans in the first year, to 4,000 loans in the second and 13,000 loans in its third year of operation. Aye has grown exponentially.
Aye has more than 30,000 customers with a loan book of more than $48 million as on October 2017 and the growth is accelerating further. Even though Aye has grown at such a fast pace over the past 3 years, the organization has ensured that the portfolio quality is not sacrificed.
The focus on costs and maintaining a productivity supported by a focus on repayments through non-cash channels live NACH direct debits has helped Aye keep its operating costs down. The company in its fourth year has started returning profits and this has in turn attracted a lot of private investors to this sector.
Micro and small businesses financed by Aye help sustain employment at the bottom of the pyramid. Aye Finance has already impacted over 30,000 micro scale businesses. These enterprises in turn employ over 210,000 workers and it is estimated that this initiative is indirectly impacting over 800,000 members of the families of the business owners and their employees.
"Aye’s vision is to be an admired finance institution that is a leader in the MSME space." - Sanjay Sharma
The target is to scale up to over 250,000 business loans by 2022 - this will equate to impacting over 1 million households and about 5 million lives.
Through the several initiatives of the company, they have been able to extend credit to small and medium scale businesses, educate owners about the best way to maintain a record of business transactions and create a platform for the businesses in the organized market.
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Sanjay Sharma, Managing Director
