Aye Finance which lends loans to micro and small businesses has announced that it has received Rs20 crore in follow-on investments from Accion International- a global nonprofit organization that supports micro-finance institutions in their work to provide financial services to low-income clients, and SAIF Partners.
The raised capital will help Aye Finance expand its reach and offerings.
India’s MSME sector represents nearly 58 million businesses, creates 150 million jobs, and accounts for 45% of the country’s industrial output. Despite the importance of MSMEs, the businesses are often too complex for traditional micro-finance lenders and too small for traditional banks. This is the gap, Aye Finance is trying to fill.
The company has developed a new Industry Cluster Enablement model (ICE) of lending, which it believes will help India’s MSMEs meet working capital and capex requirements as they look to grow their businesses.
The startup is essentially trying to tap North India where the concentration of micro and small businesses constituting the ‘missing middle’ is the highest. Even in southern states, where penetration of lending by the organized sector has traditionally been better, there remains a large unaddressed segment. In time the company plans to grow in other regions.
The financial services sector is heralded as one of the hot-spots of the near future. Recently, Paytm too enrolled itself in the competition by partnering with a number of financial institutions to start lending small loans to individuals and small enterprises via its platform. India especially, where 60% of the population is unbanked and 90% of SMEs have no links to formal financial institutions, the scope for financial services startups is rendered wide open to come, see, and conquer the market.