How Indifi is leveraging technology to lend to SMEs with little or no credit history

With 30%, first-time unsecured borrowers on the platform, Indifi is fuelling the growth of country's lending ecosystem by catering to startups & SMEs with little or no credit history.

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"Indifi's verticalised and customer-centric approach enables a deeper understanding of business cash flows and financing requirements," said Alok Mittal.
Backed by investors such as Accel Partners, Elevar Equity and Omidyar Network, Indifi Technologies is a tech-enabled debt-financing platform for small businesses. With industry-specific financial solutions, the fintech platform has emerged as an enabler for startups and SMEs that seek seamless access to funding without having to dilute their equity.

ET spoke to Alok Mittal, CEO and Co-founder of the lending platform on a range of issues, including its key differentiators, policy glitches hurting funding to MSMEs, and the way forward. Edited excerpts:

Economic Times (ET): There are many fintech platforms that aim to address the working capital woes of the MSMEs, what makes Indifi stand out of the crowd?
Alok Mittal (AM):
Indifi operates with a customer-centric view rather than a competitor-centric view of the market. The key innovation in approach that Indifi is bringing to the market is to design and deliver credit products, basis the kind of business one MSME is in. This industry verticalization brings unique benefits to the customer. Our product design fits into the business cash flows of the MSME. For example, travel agencies need working capital financing for the purchase of tickets, which is a very different product relative to restaurants, which need financing for renovation of their outlets.


Our product is offered in a convenient manner where and when the MSME needs it. For example, Indifi has purchase loans available through payment gateways, and hotel renovation loans available at the time of renovation. Further, our solutions are distributed through supply chain partners, like ticketing consolidators, online travel agencies, online food ordering companies, etc. This reduces the cost of distribution and makes the process for MSME more convenient. The platform also has multiple aggregator partnerships, which help in sourcing customers as well as data for underwriting.

Also, we incorporate the risk factors germane to specific industries in assessing customers from those industries. For example, travel agencies face volatility risk, whereas restaurants face business closure risk. This segment-driven risk assessment helps lower credit losses.

ET: In today's tech-enabled lending ecosystem, creating an industry-specific credit delivery system seems to be the mantra for success, applicable for debt financing domain too. Tell us how Indifi works towards achieving this goal?
AM:
Our approach towards SME lending since the beginning has been to work with ecosystem partners like large aggregators. This, we believed, would help us penetrate through segments better. A robust technology and data platform enable scalable segmented execution. Deep understanding of segment and customer enables us to provide tailored product offering to our customer segment in terms of cash flow cycles, need for funds, margins etc. For instance, we worked extensively with brands like Zomato to gain access to restaurants and collect relevant data in order to understand our target segment better and offer solutions accordingly.

ET: There is a notion that if a player is new in a business, debt financing may not be easily available since banks prefer some sort of proven track record. Unlike the case with a startup, when equity financing may be the most suitable way. Your thoughts.
AM:
Normally, initial financing has to be provisioned in the form of equity, either from the promoters or external equity financiers. As a business grows, various kinds of loan products may be used, including for expansion, working capital, and other purposes. Further, the specific cash outflow in terms of principal and interest repayment must be matched with the cash flows expected to be generated from the business.
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However, several startps use equity to fund working capital, as a result of which they are unable to realise their plans to scale up. Product offerings such as Indifi's collateral-free Invoice Discounting loans, startups & SMEs both, can finance their working capital needs by getting funds against unpaid invoices to large/regular B2B clients, and ensure smooth operations.

ET: For long, MSME sector's traditional pain points such as - the unavailability of adequate and timely credit facility and a high cost of credit have throttled the sector's growth. How are players like you changing the status quo?
AM:
Small and mid-sized businesses in India are severely constrained for credit. The general approach of MSME financing being been treated in a "one size fits all" manner, without much regard to the business of MSMEs is a major challenge. With our verticalized approach, we are able to understand the segment and customise our product offering of loan as per the need of the business. Indifi is substantially improving the access to credit, experience that borrowers get in terms of speed of approval and disbursement and relevance of the loan product to their business needs.

ET: Judging the creditworthiness of SME businesses who have little or no access to financing from traditional institutions such as banks or lack either collateral or finance data trail, has always been an impediment to this sector. How Indifi's approach is unique in addressing this?
AM:
Indifi's verticalised and customer-centric approach enables a deeper understanding of business cash flows and financing requirements. The following are the three key aspects that are typically taken into consideration to analyse the creditworthiness of SME businesses - ability to pay, the intent to pay and volatility of the business.

Both internal and external factors are mapped by studying business stability through the operation age and business cash flow using traditional as well as alternate data. The intent to pay is historically analysed through credit history made available by credit bureau agencies.

The leveraging of alternate data and using it to build a proprietary algorithm to make customer-centric credit decisions is one key focus area for us. The unique methods we are leveraging today enable us to add layers on top of credit bureau scoring. With 30%, first-time unsecured borrowers on the platform, Indifi is fuelling the growth of country's lending ecosystem by catering to startups & SMEs with little or no credit history, at all.
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