Pavitra Walvekar was quite content with his well-paying job in San Francisco. Due to his performance as a credit manager in Wells Fargo, the company offered him a scholarship to pursue his MBA. However, Pavitra wanted to start up and so decided to give up his scholarship and job and returned home to Pune in 2007. Unfortunately, his first venture on online education for SAT students did not take off.
Kudos Finance and Investments, a Non-Banking Finance Company, operates in the MSME (Micro Small & Medium Enterprises) space providing loans to small entrepreneurs. Pavitra received the Non-Banking Financial Institution license in 2010 and run the company on a pilot programme for the first three years. It offers loans under three products – short-term loan (1–6 months), business loans, (24 months), and machinery loans (30–36 months).
Kudos provides unsecured business loans to retailers, traders, kirana stores, saree centres, and restaurants, etc., with a ticket size of Rs 1–20 lakh. Machinery loans are meant for the manufacturing sector, with a ticket size starting from Rs 1 to 30 lakh. Under short-term loans, Kudos offers unsecured loans to existing customers who want to buy bulk goods at discounted rates, with a ticket size starting from Rs 2 to 10 lakh.
An extensive market research on the borrowing habits and loan purposes of MSME sector helped Pavitra to create a database of potential customers. Kudos Finance was officially incorporated in 2013 and managed to successfully raise Rs 2 crore in two tranches from Bank of Maharashtra in May 2014 and May 2015. In December 2015, the company bagged another 50 lakh from Mas Financial.
Pavitra (33), says,
During the initial days, I tried approaching banks and NBFC's for a line of credit. But everybody quoted portfolio size as hindrance. Ironically, I found myself to be in the same position that my customers are, as in we are too small to be funded by banks and NBFC's.”
Pavitra studied Finance in California State University, Fresno, and worked in Wells Fargo Financial for two and half years.
Robust underwriting process
Kudos follows robust underwriting process that involves proprietary method of assessing before loans are approved and last mile customer verifications to avoid fraudulent cases. The team not only rely on the documents provided by customers, but do supplier verification to get original bank statements. The startup also provides credit link shield insurance to its customers so that in case of accidental death the loan is paid off by the insurance company.
With a team of seven employees, it has its presence in Pune and adjoining Maharashtra Industrial Development Corporation (MIDC) of Chakan, Bhosari, and Pimpri.
Since inception, Kudos has done 500 transactions and disbursed loans over Rs 25 crore. It currently has 65 customers. Loans get disbursed with an interest rate of 14–16 per cent on the securities of personal guarantee, Limited Inventory Hypothecation, and Credit Shield Link Insurance.
Kudos generates revenue from the interests and the processing fee for issuing the loan. It presently disburses about 45 lakh loan a month.
Kudos Finance generated a total revenue of Rs 79 lakhs in the last fiscal year and expects to reach Rs 1.6 crore by the end of the current fiscal year. Pavitra states that they will also double their book size from Rs 3.1 to 8 crore by March 2016. The Pune-based startup will expand its footprint in Tier 2 and 3 cities to capture the urban retail market and also manufacturing units.
We are in advanced stage talks with other NBFC's for a line of credit. Hence, we will end up with one PSU bank and three NBFC's by the end of the financial year. We aim to be a 100-crore book in the next three years by way of raising debt and equity,” says Pavitra.
According to the International Finance Report, only five per cent of the 26 million registered MSME units have access to traditional sources of funding and in total there is a 450 billion dollar gap in the market for this sector.
SME financing has traditionally been limited to businesses that have solid financial credentials or assets to back the loan. However, startups like IndiaLends, LendingKart, Faircent, Capital Float are making it easier for SMEs to receive loans by leveraging technology and alternate data sources to underwrite. The potential growth rate of online SME space has drawn the attention of investors like SAIF Partners, Sequoia Capital, Saama Capital, Mayfield Fund, and more.
Kudos Finance and Investment seems to be one step behind in terms of gaining popularity in the industry where the other established players are already dominating the mindshare of MSMEs. A strategic marketing initiative seems to be the need of the hour for Kudos in a bid to create a level playing field.