Started by bankers, this fintech startup has disbursed Rs 1,500 Cr in loans to SMEs and retailers
When Pallavi Shrivastava was working with the World Bank and International Finance Corporation, she realised the retailer segment had a complete lack of access to credit, specifically working capital.
“I was fascinated by the concepts of micro-finance and patient capital that used the power of innovative financing structures to be a force for good, and how well-structured financing products can propel the growth of underserved individuals and businesses alike,” Pallavi tells YourStory.
Pallavi says there are over 15 million retailers in India and majority of them face the same challenges in accessing credit. It got her thinking of how to address this massive gap.
Meanwhile, Himanshu Chandra, a banker, had been driving the supply chain finance portfolio at Standard Chartered Bank. The duo decided to fix the problem with Progcap.
Funding and numbers
The duo had realised that existing financial products and the traditional banking approach would not be able to service the requirements of these customers.
The duo decided to start Progcap in 2017, in Delhi, to formalise and digitise access to credit to this segment. The startup aims to be a full-stack retailer-focused digital bank.
“We do this by partnering with the brands whose products the retailer is selling and through them, we onboard the customers,” Pallavi explains.
The team has now raised $25 million Series B funding led by Tiger Global and Sequoia Capital. The funding will be used to enhance its services and expand the brand's presence across existing geographies.
The firm will also use the capital to scale up the team, strengthen the technology differentiation and diversify into new product offerings to fortify its vision of building a full stack digital platform for last mile retailers.
Since its inception in 2017, Progcap has boarded more than 50 corporates, 300,000 retailers on the platform, and disbursed over Rs 1,500 crore of loans on the back of its unique supply chain-driven business model and its award-winning risk-scoring engine.
Scott Shleifer, Partner, Tiger Global, said, “We are thrilled to partner with the Progcap team as they help small and mid-size businesses get access to financing. We believe Progcap has an exciting path ahead as they continue to innovate in this underserved market.”
The startup had earlier raised $9 million Series A funding.
“Progcap has built a unique product to cater to the working capital needs of small Indian retailers who serve much of India’s USD 800 billion retail market. As supply chains in India get formalised with GST, the company will play an important role in serving the financial needs of such retailers.
"Since Sequoia Capital India’s Series A investment, Progcap has scaled the business with exceptional credit quality and high capital efficiency, the team is excited to strengthen the partnership with this financing,” said Ashish Agrawal, Principal, Sequoia India.
The field visit
Pallavi says the idea truly crystallised during a field visit with retailers for the pilot. Having met a diverse set of traders across many industries, the product, technology, and some key elements of the business model took shape following the experience of travelling across Maharashtra.
Today, Progcap is a team of over 150 people. The startup’s core platform runs on last-mile technology, which plugs into systems, accesses data relevant to underwrite the borrowers, and creates outputs.
From onboarding to disbursal and collections, the journey is completely digital using in-house systems. Most of the technology is proprietary.
“This helps us work with and service customers far away from our operating locations. The product takes into account the current terms of trade of the ecosystem, and we embed ourselves within the ecosystem to help fuel business. Our business is 100 percent digitally delivered and monitored,” says Pallavi.
She explains that working at the intersection of software and financial services, Progcap aims to be the first full-stack retailer focused digital bank that digitises, automates, and eases capital movement across the supply chain to SMBs that have remained excluded from the formal financial ecosystem.
Speaking of the market and its challenges, Pallavi says that India has over 15 million retailers, routing over $800 billion in sale.
She adds that though this customer segment is an important growth driver for the overall economy, over 90 percent of the retailers do not have access to the right kind of capital to grow their businesses because they do not have the right kind of data, and information that a traditional financial institution would require to underwrite them. Moreover, reaching these traders across the breadth of India is expensive.
However, that was not the only challenge; building the product was a task as well.
Pallavi says they had to learn how to structure the right product that fits the requirements of the retailer segment. The kind of financial products retailers have so far been using to finance their purchases are completely out of sync with their cash conversion cycles, so when Progcap came in, they found that there was a massive demand.
“Secondly, we had to build risk safeguards and structures around a segment that was used to working in an informal manner. Finally, building early traction and onboarding the first set of brands...but the response we got was encouraging,” Pallavi says.
She adds that given the informal nature of these businesses, getting access to the data to underwrite was tough but they built the right technology, completely in-house, to get going and also created a business model that made it easier to reach the retailers.
The technology play here is huge – right from accessing data and underwriting to service delivery and dashboards.
“In lending businesses, it’s also about asset quality, underwriting, and cost of acquisition. For first-time entrepreneurs, it takes a little longer to get investor convinced but since we came from this industry, getting business traction was easier. COVID-19 and the ensuing lockdown stress-tested our model and we stand vindicated with the practically NIL write-offs. We are now on a path to scale up significantly from here,” Pallavi says.
The MSME sector is growing at a fast pace, and its contribution to India’s GDP continues to soar. According to the Confederation of Indian Industry (CII), MSMEs contribute 6.11 percent to the manufacturing GDP, 24.63 percent to the GDP from service activities, and 33.4 percent to India's manufacturing output. Despite the huge contribution, the sector is considered laidback.
Others in the lending segment include LendingKart, NeoGrowth, Vivriti Capital, Shubh Loans, Happy Loans, KhataBook, IndiFi, and OkCredit.
“We work with the Indian arms of many Fortune 500 companies. The combined turnover of these entities in India is $60 billion. We have disbursed over $100 million so far and are growing at close to 25 percent MoM. We are now 8X of the volumes we were doing just before lockdown and expect to be 5X of our current size by December 2021,” Pallavi says.
She adds the next three to five years for the company are all about growing at a breakneck speed.
“By helping retailers purchase, stock, sell, and digitise, Progcap is slowly becoming a core engine of their growth and profitability. The size of the market is expected to cross $1.5 trillion by March 2026, and Progcap is well positioned to be a leading player in supporting the growth of a small retailer,” Pallavi says.
She adds their broader mission is to be an end-to-end service provider for all retailer transactions. Progcap is aiming to impact over five million enterprises by the end of 2023.
Edited by Kanishk Singh