U GRO Capital: A Financial Immunity Booster For MSMEs To Bounce Back!

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Micro, Small and Medium Enterprise (MSME) Sector has emerged as a very important sector of the Indian Economy, contributing significantly to employment generation, innovation, exports, and inclusive growth of the economy. Micro, Small and Medium Enterprises (MSME) are the backbone of the socio-economic development of our country.

It also accounts for 45% of the total industrial production, 40% of total exports and contributes very significantly to the GDP. Manufacturing segment within the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.5% of services. The total contribution of MSMEs to the GDP is 37.54.

U GRO has created a range of Sector Specific Loan Products, using a combination of industry data and advanced analytics to unlock the true potential of business. Using sectoral knowledge from financial and non-financial sources. U GRO deep-dive into the ecosystem various business operates into understand the growth of the business venture.

U GRO- Company Highlights

  • Company Name-U GRO Capital Limited
  • Headquarter-Mumbai
  • Founder-Shachindra Nath
  • Sector-Financial Services (NBFC/ Fintech)
  • Founded-2017
  • Registered Entity Name-U GRO Capital Limited

U GRO Capital- About and How It Works

U GRO Capital has developed a sophisticated and self-sufficient underwriting process, which is capable of approving principal loan to customer in less than 60 minutes. Their constant efforts towards bettering their existing processes have enabled them to launch an end to end digital platform - Sanjeevani, which is built upon a deep digital architecture, towards easing the borrowing experience and quickening the disbursals as the entire process, from filling the application form, sharing documents and getting disbursal of the loan can be completed from customer’s workplace within 3 – 5 business days.

U GRO Capital was the first organisation to adopt a sector specific strategy; the company realised that the cash flows of an electrical equipment manufacturer will be very different than that of an education institution or a pharmacy store – which implies that these entities need to be assessed in very different ways. U GRO deep-dive into the ecosystem various business operates into understand the growth of the business venture. Their statistical predictive models, augmented with external data sources, power assess business and create super-customized sustainable solutions that offer better prospects for long term growth.

They have solved for this using their proprietary solution “GRO Score”, which was implemented from day one of business operations. GRO Score utilizes a wide range of sector-specific parameters to estimate default rates. It has a Gini co-efficient of over 60%, indicating a high degree of stratification, and thus allowed them to remove 70% of ‘bads’ by removing the bottom 20% by GRO score.

U GRO Capital- Founders

U GRO Capital is founded by Shachindra Nath.

Shachindra Nath

Mr. Shachindra Nath has over two decades of experience in the Indian Financial Services industry, with a proven track record of building and scaling large financial institutions. He was formerly the Group Chief Executive Officer of Religare, where he successfully led the IPO process and established multiple successful new business lines. He began his entrepreneurial journey with U GRO Capital, where he seeks to build an institution that will provide real value to society and stand the test of time. He is a qualified lawyer and a University Rank holder from the Banaras Hindu University (India).

Abhijit Ghosh – Whole Time Director and CEO, is a passionate and visionary leader who brings more than two decades of experience to the company from his key roles across Banking & Financial Services, Consumer Appliances, Hospitality, Telecom & Healthcare. Prior to coming aboard, Abhijit served as the President and Chief Business Officer at Religare Finvest Limited. He has also worked at ABN Amro, Future Capital and ICICI Bank. He is a Science Graduate from the University of Calcutta and an alumnus of Kellogg Executive Education & XLRI Jamshedpur.

Anuj Pandey – Chief Operating Officer, is a founding team member who leads the Product, Strategy, Marketing, Technology, Analytics and Process functions at U GRO. Anuj brings 20 years of experience across firms such as Barclays Bank, ABN AMRO Bank, GSK Consumer & Religare Finvest. Anuj holds a Bachelor’s degree in Engineering (Mechanical) from Thapar University & PGDM from IIM Lucknow.

J. Sathiayan – Chief Business Officer, is a finance and banking professional who brings over two decades of experience in the domains of SME and Business Finance, Retail Liabilities and Assets, Third Party Products Distribution and other financial services at Religare Finvest and ABN Amro.

Manish Agarwal – Chief Risk Officer, is a member of The Institute of Chartered Accountants India, The Institute of Company Secretaries of India, and the Institute of Cost and Works Accountants of India. He has previously held roles including Chief Credit Officer at YES Bank and Head of Policy for Retail, Agri and SME at ICICI Bank.

The Company currently has nearly 200 employees and a loan portfolio of approximately INR 1,000 crores. U GRO has had a culture of innovation since inception, which has allowed for the many developments made. The organization has a relatively flat hierarchy, and senior management consistently interacts with employees of all levels within the firm.

How Was U GRO Capital Founded

The trigger behind instituting U GRO Capital could be traced back to the reflection on the state of MSMEs. It is really hard to acknowledge the fact that despite the MSME segment contributing to 30+% of India’s GDP, a vast majority of it lacks access to formal credit. U GRO was hence, instituted to ‘bridge’ this credit gap by utilizing our deep knowledge of the sectors, to build products optimized to the MSME needs, technology driven underwriting process for comprehensive assessment of MSMEs, critical to cater to thin file customers and also to achieve scale and enabling watertight corporate governance to eliminate possibility of egregious breaches in other market players. NBFCs are generally more nimble and able to specialize than banks, making them ideal for lending to the MSME segment, where a degree of specialization is requisite for good underwriting

U GRO was instituted with the buyout of Chokhani Securities Ltd, followed by its capitalization and rebranding with new management and business model to U GRO Capital. The technology architecture started with the building out of internal core processing platforms – LOS and LMS. Post this, the focus has been on developing tech modules for facilitation of each distribution channel viz. GRO Xstream for BFSI, GRO+ for Traditional Branch-led, GRO Chain for Ecosystem and GRO Direct for Direct Digital.

U GRO Capital- Name, Logo and Tagline

The company’s name was derived from the mission statement. U GRO was founded with the vision of ‘Solving the unsolved: India’s $300B MSME Credit Gap’, and their name speaks to their commitment to their MSME customers – they want to see “U GRO”, or they grow.

Shachindra grew up in a small town and in his early experiences in the carpet industry, he noted just how difficult it was to scale businesses as a result of insufficient financing availability. U GRO Capital is the manifestation of his dream of providing adequate financing to all fundamentally strong MSMEs, such that those entrepreneurs can achieve their own dreams.

U GRO Capital- Vision and Mission

U GRO caters to specific SME sectors by using their advanced knowledge of 8 sectors to create insightful loan products for each sub-sector. They use a unique combination of intelligence & technology using statistical predictive modelling to understand a prospective customer’s potential for growth. Their sub-sector level knowledge is derived from over 25 financial & non-financial sources to understand the ecosystem which the customer operates in.

U GRO Capital’s mission is to ‘Solve the Unsolved’ – the US$ 600Bn Small Business Credit Need. U GRO Capital believes that the problem of small businesses can be solved by building deep expertise around core sectors of MSMEs in India coupled with a data centric, technology-enabled approach.

U GRO Capital- Target Market Size

U GRO Capital is a pureplay MSME lender. The total addressable demand for financing from Indian MSMEs is ~INR 45 trillion, as estimated by IFC. Of this demand, only INR 23.7 trillion is met through formal sources – largely banks, NBFCs and other FIs. This leaves a gap of INR 21.3 trillion, which is estimated to be growing at over 7% per annum. U GRO’s vision is to cater to this gap.

U GRO Capital- Products/ Services

MSMEs can avail capital through U GRO’s operational four-pronged distribution model-

Traditional branch-led channel: Sourcing through GRO-Partners (DSAs) – secured and unsecured business loans

Partnerships & Alliances channel: Sourcing through our fintech, machinery and BFSI partners to provide both secured and unsecured term loans with a range of tenures and rates basis security and collateral type

Ecosystem channel: Vendors, dealers and distributors of our partner Anchor corporates can avail supply chain financing from them with invoice collateral

Direct Digital channel: SMEs can directly apply for financing through their website, or through their fintech partnerships

While they have maintained a keen focus on their initial prime/near-prime target segment, they have also worked towards addressing a broader demographic as per their efforts to solve India’s MSME credit gap. This has seen them already cater to the working capital needs of vendors associated with their ecosystem anchors. Additionally, U GRO has built out a 9th statistical scorecard for microenterprises. Microenterprises behave as a homogenous group by size rather than by sector, making it ideal to build a separate scorecard to address all enterprises of a certain size and below rather than to try and underwrite them using their extant sector scorecards.

The coming months will also see the company launch their direct distribution branches. Until now, U GRO has 9 branches in Tier I metro cities, and these largely cater to the aforementioned prime/near-prime segment through an intermediated mode of distribution. In order to cater to MSMEs in Tier II/III metros and sub-urban locations, they will open branches in such locations and reach out directly to MSMEs. This will also see them foray into a higher yield segment.

U GRO Capital- Business Model and Revenue Model

The core revenue model is raising liability at low rates and disbursing loans at higher rates, thus earning spreads – riskier segments will have larger spreads, but this is counteracted by higher rates of bad loans Additional fee-based income sources come from upstream co-lending and other assignments. Incremental revenue sources include cross-selling, particularly insurance.

MSME loan requirements range from INR 1 lakh to INR 5 crores depending on sector in which they operate and their respective turnovers and business needs, and they step in to cater to the varying requirement, via their corresponding tailored services. In terms of pricing, their average yield on book for secured loans was 11.7% in June 2020, 18.5% for unsecured loans and 13.3% for supply chain financing.

On a blended portfolio level, U GRO’s yield was 14.1%. This is as compared to their weighted average on-book borrowing rate of 10.5% as of June 2020 – a figure that has come down significantly, and thus increased their spreads. The commissions to their U GRO Partners (DSAs) are in line with market norms.

U GRO Capital- Startup Launch

U GRO’s first customers were achieved through a mix of their branch network and the BFSI partners, although largely the former. Their initial investment in branches and human capital infrastructure really increased the ease in building up their customer base, and U GRO reached 100 customers very shortly after commencing lending operations.

U GRO Capital- Marketing Strategy

Analytics and technology have been significant parts of U GRO’s organization structure from day one – it is a core strategic focus area for them, and they have invested in requisite manpower and infrastructure to enable advanced applications. This has resulted in their early success stories – their loan origination platform which connects to 24 external APIs and can produce an in-principle decision within 60 minutes, and their customized business rules engine which hosts all the credit policies and credit scores. U GRO has crossed Rs.1000 crore of disbursal and turned profitable in the first year and 100% of the loans have been processed through the system using their policies and analytical models.

U GRO is a fast maturing analytics practice with vertical competencies on data engineering, portfolio analytics and on-boarding science/ predictive modelling. They are making rapid strides in taking advance data science and ML/AI based applications to the market. They have developed an in-house ML deployment engine and are in final stages of implementing our home-grown alternative data model for credit assessment. Work has progressed to a great extent in their bid to digitize processes that have always been physical – such as location assessment, alternate data-based fraud checks, facial recognition and object identification.

They have also forged key partnerships across a number of channels, which are critical to their forward strategy as they allow for low opex methods of scaling up their book. The company has over 35 partners in their partnerships and alliances channel, ranging from partner BFSIs to fintechs to machinery partners. They also have 26 ecosystem anchors, through whom they lend to vendors. Notably, they have 5 marquee upstream co-lending partners – including SBI, Bank of Baroda and ICICI Bank.

For India’s largest public and private sector banks to be willing to co-lend with them at such an early stage is a huge indication of their trust in our abilities, especially as it pertains to being able to source and underwrite high quality MSME loans. Co-lending represents a highly value accretive channel as it comes with a combination of income on interest spread and also fee income.

U GRO Capital- Challenges

It goes beyond saying that the COVID-19 was the most devastating thing happening to not only our economy but the entire world. It also posed as the biggest challenge to U GRO, too.

The pandemic induced lockdown was responsible for short term impact of non-disbursals from March to May 2020. The asset side goals being pushed back, they shifted their focus towards strategic improvements in order to make up for the lost time. They were to a great degree able to increase its capabilities on technological and governance fronts, towards their long-term goal of achieving an entirely digitalized underwriting process.

This included the integration of video KYC and digitalization of the personal discussion process and customer loyalty framework, and the development of an in-house rule engine. With a highly self-sufficient underwriting process and their strong liquidity base, they were able to resume our potential operations pretty strongly as their July disbursals bounced back to a staggering 80% of pre-Covid levels. As of September, they have fully re-achieved pre-Covid levels of disbursements despite the many limitations still in place as a result of social distancing. U GRO fully expect to be able to build on this and further scale their asset engine in the coming months and years.

U GRO Capital- Advisors

One of the key advisors to U GRO is:

Global Value Creation Partners – led by Sanjeev Goel, ex-Head of Equity Investments FIG for EMENA and Asia at IFC.

U GRO Capital- Acquisitions and Mergers

U GRO Capital was formed through the acquisition of Chokhani Securities Ltd, there have been no further acquisitions till date.

U GRO Capital- Recognitions and Achievements

World BFSI Congress Awards by ET NOW in the categories – Financial Services, FinTech & Loan

‘Finnoviti Award 2020’ by Banking Frontiers, partnered by Deloitte in the category ‘Business Model – Innovation’

4th Edition of IBGL Awards 2018-19: ‘India’s Greatest Leader 2018-19, India’s Greatest Brand 2018-19’

India NBFC Summit 2019 Awards by Perfios: ‘Rising Star of the Year’

Companies & Education Awards 2019: ‘The Most Trusted Company Emerging NBFC’

U GRO Capital- Future Plans

U GRO operates through their nine branches: Mumbai (Head Office), Delhi, Kolkata, Bangalore, Chennai, Hyderabad, Ahmedabad, Jaipur and Pune. The Company’s total income stands at Rs. 30.79 crores for Q1 FY21 with a PAT of Rs. 3.73 crores and CRAR of 99.42%. The net worth of the Company stands at Rs. 926.1 crores as of June 30, 2020 with book value per share being INR 131.31.

The Company’s AUM at the end of June 30, 2020 stood at INR 847.4 crores across 7,343 customers. Of the total loan book, 69% is secured. Sectors including Education, Light Engineering and Electrical Equipment & Components constitute 54% of the total loan book whereas geographical concentration at a state-level is at a maximum of 21%. Notable partnerships include co-lending partnerships with SBI, Bank of Baroda, ICICI Bank

While it is not possible to predict the trajectory of the pandemic and the subjectivity of the future, assuming a gradual remission, the company can positively expect to be normalized by the end of FY21.

For lending in post-Covid times, they have created an evolved loan program Sanjeevani which aims to boost the capital starved MSME sector. Already a pivoting platform, we continuously strive towards enhancing its self-sufficiency, as they commit to reach out to 500,000 MSME clients.