Indian NBFC Aye Finance raises $33.34 Mn In Series D Funding

Non-banking financial company Aye Finance said it has raised $33.34 Mn (INR 233.62 Cr) in Series D equity round led by New York-based investment firm Falcon Edge Capital. Existing investors CapitalG, LGT and MAJ Invest also participated in the round.

Aye Finance, which lends to micro enterprises in India who lie outside the reach of  traditional banking services, said it will use the money to further grow its micro lending service and develop its financial technology that includes data mining.

“In the coming year we will make our services to our clients go beyond finance,” said Sanjay Sharma, managing director at Aye Finance.

Aye Finance began operations in 2014 and claims to have serviced over 120,000 micro enterprises through its 104 branches in 11 States and has a loan book of over INR 10 Bn.

“We focused on MSME and SME lending as a significant yet under-served financing opportunity with healthy unit economics and a large, fragmented addressable market,” said Navroz Udwadia, cofounder of Falcon Edge, while commenting on the decision to invest in Aye Finance.

Aye Finance claims to use data sciences coupled with cluster-based underwriting model to keep its operating costs low, drive better underwriting and help with obstacles related to inadequate documentation of incomes of its customers.

Growing Prominence Of NBFCs

India is seeing NBCs take a very critical role in growth of small enterprises with more than 80% of equipment leasing and hire purchase activities in India being financed by them, according to a report by India Brand Equity Foundation.

Players looking to get in on the action include the likes of Flipkart cofounder Sachin Bansal who made his first two investments in Non-Banking Financial Companies (NBFCs) — Altico Capital India and IndoStar Capital Finance.

Bansal  has reportedly invested $35.16 Mn (INR 250 Cr) each via non-convertible debt to help the NBFCs  manage their working capital requirements and to leverage their books.

Over the last five years, the NBFC lending book has grown at nearly 18% driven by a deep understanding of target customer segments, use of technology advances, lean cost structures and differentiated business models to reach credit-starved segments, according to global consultancy PricewaterhouseCoopers.

Although there are a lot of positives and potential for NBFCs, their lending habits has had left much to be desired with many going bust last year because of  reckless credit expansion and now face a liquidity crunch due to external developments (IL&FS default) and as investors take a step back from the initial investment frenzy to measure their moves, especially with stock prices of the listed non-banks faring poorly.