'Godrej Capital Working on Building Longterm Relationship with SMEs'

Making credit accessible through investment in technology and analytics enables NBFCs to build advanced credit scoring models based on alternative data points like mobile records, social media data, psychometric data, etc. These data points allow NBFCs to assess the risk for small-ticket size loans for micro-businesses. Well, discussing this and many more especially, how Godrej Capital is trying to attract Indian SMEs even after being a late entrant into this space. Here is an exclusive interview between Mr. Nalin Jain, Chief Customer Officer at Godrej Capital and Dr. Faiz Askari, Founder Editor of SMEStreet. 

Here are the edited excerpts:

Faiz Askari: There is a lot of potential in the SME sector. However, the credit gap is too large for SME growth. How can NBFCs solve this credit gap issue for the sector?

Nalin Jain: Approx. 30% of India’s GDP is estimated to be driven by MSME businesses. Despite such a stellar contribution, there remains a vast untapped potential. The lack of financial inclusion essentially causes this.

• Offering customized and end-used based products to entrepreneurs with varying cashflow seasonality. NBFCs have managed to gauge the seasonality and build in-depth operational knowledge to understand capital requirements. This has resulted in offering customized products that suit the need of these small businesses.
• Extending value-added support and spreading financial inclusion to bring small businesses under the ambit of organized financial services. New-age lending institutions also provide various services like assisting businesses with bookkeeping, digitizing stores, and market linkages. These services aid small companies in increasing sales and revenue and result in greater returns for the capital invested, thus reducing the overall risk and growing the visibility of cashflows to NBFCs.
• Providing flexible repayment options/terms such as weekly, bi-monthly, and quarterly payments. 
• Godrej Capital is a new entrant in the NBFC space.

Faiz Askari: How are you contributing to the growth of SMEs?

Nalin Jain: Godrej Capital has designed its SME-oriented loan products, such as Loan Against Product, to cater to the challenges mentioned above of the SMEs.

• Offerings such as LAP 25 and Design Your EMI, under the LAP program, address the distinct challenge of business owners: seasonality of the business and uneven cash flows

• Business owners can avail of higher loan amounts for longer tenors and repayment options like only interest payments for up to 3 years and quarterly or bi-monthly instalment payments.
• Recently launched, NeoLAP assesses composite income structures, including informal income, without any proof of documents, thus enabling business owners with a higher loan amount, creating a distinct advantage for Godrej Capital.
• Beginning in 2023, Godrej Capital will also launch unsecured business loans in the coming year.
• Our intent is not to restrict ourselves to catering just to the funding requirement of the business. In addition to lending, we aspire to create a relationship-based SME ecosystem that can cater to MSME needs in terms of professional service requirements like accounting, marketing, customer relationship management, supply chain/business consultancy, etc. that shall tailwind their growth. 

Faiz Askari: Are there any plans for co-lending, or inorganic growth, and how will you enhance customer segmentation?

• The core focus for Godrej Capital is to achieve INR 6000 cr. Balance sheet by the end of FY23 and INR 30,000 cr. by the end of FY26. This will primarily come from Home Loans, Loan Against Property, Business loans and other ecosystem-based lending, in line with our ambition of becoming a preferred retail financial institution.

Faiz Askari: Modern-day financing requires digital and industry-first products and when it comes to SMEs the products need to be more thoughtful. How does Godrej Capital ensure this?

• As Godrej Capital expands into the SME sector, our key focus will remain to induce flexibility to our cash-strived borrowers through our innovative products and services.

• Since we understand that the MSME sector has uneven cash flows, we aim to solve this challenge by bringing flexibility in repayments and borrowing. For instance, under the Design Your EMI program in our LAP product, small business owners can only pay interest for up to 36 months or choose bi-monthly and quarterly installment options.

• Furthermore, we are looking at further strengthening our tech-enabled product offerings as we now better understand the varying customer segments through our data-driven decision-making. This will ensure higher eligibility among borrowers with composite income structures.
• Lastly, our open API architecture further enables partnerships with Fintech platforms to enable digitized offerings for a seamless experience for small business owners.

Faiz Askari: As credit demand is back, what are the trends you foresee in the MSME credit lending space for the coming year? What are the plans for Godrej Capital in the coming few years?

There are several trends that we foresee in the MSME lending space for the coming year:

• We are incorporating cutting-edge modelling techniques and leveraging transaction data and online sales to adjudge MSMEs’ creditworthiness better, ensuring higher eligibility.
• Increased investments and integration of emerging technologies such as Artificial Intelligence (AI), machine learning, and big data analytics. These technologies will help new-age financial institutions to build models of alternative credit scoring, enabling the ability to price for the customers rightly
• Digital engagement in SME lending, such as e-KYC, e-signature, etc., to reduce the number of manual processes to help retain old customers and acquire new ones

Apart from investing in the points mentioned above, Godrej Capital will focus on building a relationship with SME customers by providing value-added services that enable businesses to grow and expand their ecosystems.