This Pune NBFC makes Rs 144 Cr revenue by financing machinery loans to MSMEs

Electronica Finance created a business model out of providing machine loans to MSMEs. It says it opened 55 branches across India, served more than 7,500 MSME customers, and has over Rs 1,150 crore worth Assets Under Management (AUM).

4th Jan 2020
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The MSME sector in India accounts for 45 percent of manufacturing output and more than 40 per cent of the country's exports. These numbers show how critical the sector is to India’s manufacturing sector and its economy.

However, it is not easy for manufacturing MSMEs to sustain their momentum.

Expensive machinery and equipment needs to be upgraded at regular intervals to maintain and increase production. MSMEs need to also purchase new machinery to meet demand. Owing to their high capital costs, machinery and equipment are usually purchased through machinery loans taken by the MSME.


To sanction loans, banks generally require collateral that the MSME may not have or may already be given as collateral against other loans.

Pune-based SRP Electronica Group, a business built from manufacturing and selling machinery, experienced this first-hand.

“The MSME customers of Electronica Group used to find it difficult to raise finance for the purchase of machines without collateral. No financial institution was ready to look at the business model; they took decisions only on the basis of financial statements,” says Shilpa Pophale, who is managing director of Electronica Finance -an NBFC started by the group to resolve this financial challenge for MSMEs.

It was setup in 1990, a time when nobody else was really looking to finance the purchase of machinery for MSMEs. Electronica Group was fairly well-established by then (it was started back in 1975), and funded the launch of Electronica Finance.

Over the years, the NBFC created a revenue-making business model out of providing machine loans for MSMEs. Pophale says it opened 55 branches across India, served more than 7,500 MSME customers, and has over Rs 1,150 crore worth Assets Under Management (AUM).

It generated revenue of Rs 144.77 crore in FY19.

shilpa pophale

Shilpa Pophale, Managing Director, Electronica Finance

In an exclusive interaction with SMBStory, Shilpa Pophale explains more about how Electronica Finance functions and why the company has a focus on financing rooftop solar for MSMEs:

Edited excerpts from the interview:

SMBStory (SMBS): What is the business model? How does the company make revenue?

Shilpa Pophale (SP): Electronica Finance is into lending for the purchase of industrial equipment, machines, purchase of industrial properties and lending working capital and loan against property. The company has a focus on the manufacturing sector.

More than 95 percent of our customers are in the manufacturing business. Our branches are in industrial clusters/belts around the country, as being close to the customer is the motto of the company. 

It recently has forayed into financing secured loans for small and micro businesses and has started this business in Gujarat with plans to expand in other states as well. The company also does credit underwriting practices, risk management function as well as collection and recovery for supporting sales teams for generating and managing business. 

The revenue streams of the company are through generation of interest income on loans given to the customers, fee income from various services and other income through cross selling of insurance products. 

SMBS: How did Electronica Finance diversify into different financing categories?

SP: Early on in its formative years, we realised that the MSME sector is underserved and has a lack of access to capital. This segment is unique and its financial needs are not plain vanilla in nature. The key to MSME lending is to understand the customer, besides the financial statements and ratios in balance sheets. 

Hence, the company decided to keep the customer at the centre of everything that it does and be innovative in its offerings so that the exact needs of the customers are met. This was the genesis of the machine financing product. 

As the company understood the customer better, it realised the customer has needs for purchasing industrial property, working capital, and other ancillary requirements. This paved the way for introduction of products addressing all these needs. 

SMBS: How are you implementing this rooftop solar financing product?

SP: We are probably the first NBFC to launch a dedicated product for financing of rooftop solar installations. With our understanding of the MSME segment and customer centricity, the product aims to help MSMEs install rooftop solar panels and add to its bottom line. The product is flexible and loans under this are assessment-based, thereby ensuring that the savings arising out of the rooftop solar are used for servicing the loans. 

This feature also does not put the cash flow of the MSME customer under pressure. The company intends to build a deep understanding of the solar panel market, and especially the financing aspect.

sr pophale

SR Pophale, Chairman, Electronica Finance

SMBS: Why are you focussing on financing rooftop solar for MSMEs?

SP: There are various benefits of rooftop solar for MSMEs. The most important among them is reduction of carbon footprint. Along with replacing obsolete technology used in machines by purchasing the latest energy efficient machines, rooftop solar will be a huge contributor to climate change initiatives. Another important aspect is the savings in electricity cost and consequent addition to the bottom-line of MSMEs. This will also pave the way for MSMEs to access capital from various other development institutions.

SMBS: What are the toughest moments the company faced?

SP: There have been various moments in the three decade journey of the company. These include the NBFC crisis of 1998 where CRB Capital Markets defaulted and almost 70 percent of NBFCs were wiped out. The Lehman Brothers collapse in 2008 and the resultant credit squeeze was also a testing period.

More recently, events like demonetisation, GST implementation, IL&FS default and issues with home loan NBFCs like DHFL have been trying times.

SMBS: Who are your competitors? How is the company staying ahead of them?

SP: The company has various competitors, primarily PSU banks. There are also a few NBFCs who have similar products and are into some of the market segments that we operate in. I think the company’s customer centricity, innovations in products, and being by the side of the customer through thick and thin lends an edge to the company. This has also ensured that we have seen many cycles and competitors, and outlived them.

SMBS: Have you raised any funds recently?

SP: In April 2019, a climate fund managed by impact investor responsAbility invested $10 million in green masala bonds sold by Electronica Finance. In December 2019, we raised over $15 million through the issuance of Compulsorily Convertible Preference Shares (CCPS). 

The funds will be utilised for business growth in the existing product segments and expansion into our rooftop solar financing business. New York-headquartered Encourage Capital (one of the key promoters), took a minority stake in our company through its fund, Encourage Solar Finance, L.P. 

The incremental funds raised will enable us to cater to the MSME segment more vigorously, as well as, grow our business in machinery financing through various funding options.

SMBS: What are the future plans for the company?

SP: This year has been particularly difficult for the manufacturing sector and MSME segment. Despite this, we are confident of growth largely because of diversification of products and geographies. 

We intend to continue our focus on the MSME segment in the foreseeable future. We have already started businesses to cater to MSMEs at the bottom of the pyramid through Emerging Enterprise Loans (EEL), which are secured loans for micro and small business primarily in the service and trading segment. 

The company also intends to strengthen its offering for loans to small NBFCs and MFIs. We also recently started a new platform through our new website ‘EFL Connections’, which is a marketplace for buying and selling used and new machines and industrial property.

(Edited by: Palak Agarwal)

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