How OfBusiness is helping SMEs get credit lines for their manufacturing needs

Technology-driven financing platform OfBusiness relied on its ERP solution OASYS to disburse loans and achieve revenues of Rs 220 crore in FY 2017.

The demonetisation in 2016 translated into a dip in sales for many startups and even large enterprises as arranging finance for bulk purchase orders got tough. OfBusiness, on the other hand, was one of the few ventures that actually saw a drastic rise in orders because of its operational model.

OfBusiness, with its product fulfilment engine, aims to serve as a single window for SMEs to get secured and unsecured credit lines, which they can use for cost-effective procurement of goods. These goods can vary from raw material like steel and cement to polymers and solar equipment.

The story so far

Launched in January 2016 and based out of Gurgaon, India, OfBusiness is a technology-driven financing platform for small and medium-sized enterprises (SMEs). The venture was co-founded by eight people - Vasant Sridhar, Dhaval Radia, Bhuvan Gupta, Ruchi Kalra, Asish Mohapatra, Chandranshu, Nitin Jain and Biswajit Mishra, who hail from institutes like IIT and ISB, and some of whom are top chartered accountants. Between them, they have collective work experience across companies like McKinsey, Religare, Royal Bank of Scotland, ITC and Snapdeal.

As CEO, Asish spearheads overall operations at OfBusiness and works towards building a stronger organisational structure. He counts IIT Kharagpur and ISB Hyderabad as his alma maters, and in 2002 joined ITC as an Operations Manager in Supply Chain and Manufacturing. During his stint there, Asish says he overturned an under-performing ITC subsidiary SME into a fully functional production unit with annual turnover of more than Rs 1,000 crore.

In 2006, he went on to become Engagement Manager at McKinsey & Company with healthcare, pharmaceutical and medical products in his portfolio. In his most recent avatar before starting up, Asish was a part of Matrix Partners as a venture capitalist from 2010 to 2015.

Talking to YourStory, Asish notes that OfBusiness’s goal is to help SMEs further into the financial mainstream by providing “purchase financing” of raw materials, which is 60-70 percent of an SME’s total cost.

OfBusiness raised Series A funding of $5 million at the inception stage in January 2016 from Matrix Partners and a host of angels. A year later, in January 2017, it raised US$ 11M Series B from Zodius Technologies, with participation from previous investors, taking the total funds raised to $16 million.

How OfBusiness works

OfBusiness brings in institutional credit (secured and unsecured) to SMEs. They do this by aggregating several raw materials, getting them financed by local distributors and financiers, and then passing most of the aggregation benefits, such as volume discounts from manufacturers, to the SME.

The above process is termed as “Purchase Financing” and OfBusiness lets SMEs attain credit lines for an array of raw materials such as industrial steel (structures, plates, and coils), electrical goods, cement, bulk polymers, chemicals, building materials and solar installations. Talking about their client bases and use cases, Asish says,

Typical SMEs who use OfBusiness' purchase financing limits are in manufacturing and infrastructure services in the chosen clusters that OfBusiness operates in. After a purchase financing limit has been sanctioned from OfBusiness, the SME places inquiries within the limit and uses it for purchasing raw materials from the platform.

OfBusiness then aggregates the select raw materials that SMEs across clusters order directly to the manufacturer, generating channel efficiencies. Asish notes that a bulk of the margin generated due to these efficiencies are passed on to the SME. The average credit limit given by OfBusiness ranges from Rs 30 lakh for unsecured to Rs 80 lakh for secured credit lines.

The two core SME sectors

While OfBusiness offers credit lines across multiple categories, the startup is currently most active in two core SME sectors of India’s economy – metal and polymer manufacturing (primarily in auto, power, capital goods and pharma) and infrastructure.

OfBusiness does lead acquisition online by capturing SMEs as they bid and win tenders (aided by OfBusiness), which makes the marketing effort efficient in both cost and quality.

Underwriting of loans by OfBusiness is done by not only evaluating financial data of the SME, which at times is inadequate, but also several other alternate data sources of SME operations, which are contributed by the SME community of buyers and sellers.

Fulfilment of raw materials is done by OfBusiness using a bidding engine that helps buyers and suppliers get discovery and commercial benefits. Asish says,

OfBusiness combines financing and fulfilment, two very different operating models through technology. Everything from lead acquisition to underwriting to fulfilment of raw materials and settlement is built on an in-house built Enterprise Resource Planning (ERP) backbone called OASYS.

Based on their contracts, SMEs have repayment cycles that extend up to six months.Asish says that so far defaulters have been miniscule, constituting about 0.2 percent of their customers.

With a team strength of about 180 employees, OfBusiness is currently active across nine states and 20 SME clusters in India.Asish shares that OfBusiness has already achieved a revenue of Rs 220 crore in the previous fiscal (FY 2017) and is projecting a Rs 750 crore turnover in the current fiscal (FY 2018). He believes that a cluster-based approach to expansion is cost efficient and effective because of word-of-mouth marketing.

Asish credits their success to the in-house OASAYS, which their team worked on for different constituents of the SME ecosystem (customers, suppliers, QC providers, lenders and partners). OfBusiness does lead acquisition online by capturing SMEs as they bid and win tenders (aided by OfBusiness), which makes the marketing effort efficient in both cost and quality.

Underwriting of loans by OfBusiness is done by not only evaluating the financial data of the SME, which at times is inadequate, but also several other alternate data sources of SME operations, which are contributed by the SME community of buyers and sellers.

Fulfilment of raw materials is done by OfBusiness using a unique bidding engine that helps both buyers and suppliers get discovery and commercial benefits.

Sector overview and future plans

According to a 2016 Credit Suisse report, the Indian consumer and SME loan market is expected to grow to $3,020 billion from $600 billion over the next decade. Some of the prominent players in this space include LendingKart, Capital Float, Aditya Birla’s abfldirect and LoanMeet.

Through its fulfilment plus financing model, OfBusiness generates a lot of data about the SMEs it finances. The company understands the purchase and payment pattern, suppliers that it engages with and payments from its anchor customers - thus learning more about the operational and contemporary financial health of the SME. Asish explains,

This is because the SME is acquired mostly while it bids for a tender and hence a lot of operational data about the project that it has executed in the past or will execute in the future is collected. OfBusiness intends to use a lot of this current data to design bill discounting products more attuned to the nature of the ‘financial’ relationship between the SME and its customer.

Using similar data above for SMEs that excel on project execution, OfBusiness intends to finance the whole lifecycle of the project.The only feature that will remain OfBusiness’ core is that all financing will be done through provision of raw materials that OfBusiness aggregates.

Asish says new products have now been piloted with some select customers and will soon be made available to others as well. Apart from its existing financing product portfolio, OfBusiness is in the process of launching a unique equipment and project-financing product for SMEs aligned to their cash-flow cycles.

The team is also aims to grow from nine states to more parts of India. Asish says OfBusiness intends to raise approximately $25 million in their next round of funding to fuel growth. His long-term vision is to grow OfBusiness into a billion-dollar venture over a course of the next three years and become a vehicle that can touch more communities like the SME market.

Website- OfBusiness