Sanjay Sharma Talks About How He Got Past the Loneliest Days He Faced as an Entrepreneur The managing director of Aye Finance discusses social entrepreneurship and how he built an MSME lending startup

Founded in 2014, fintech startup Aye Finance disperses loans to MSMEs or micro-enterprises. It has raised several rounds of funding and is backed by the likes of Alphabet Inc's growth equity investment fund CapitalG, SAIF Partners and Falcon Edge Capital, among many others.

Ritu Marya, Editor-in-chief of Entrepreneur India and Asia Pacific, talked to Sanjay Sharma, managing director of Aye Finance, to discuss its success story and how the startup is fulfilling the twin purposes of social responsibility and entrepreneurship.

How Aye Finance Got Its Name

Aye Finance is an unusual name for a non-banking finance company or even a fintech startup. Sharma says the name appealed because the word "aye' has various meanings in several languages. He says, "In English, it obviously means "yes', in Hindi, it means income. "Aye,' in many regional languages, means mother." The name "aye' seemed to serve different purposes that the fintech represented.

The Beginning

Sharma, although an engineer by profession, has been in the banking sector for over 30 years now. He says, "I always wanted to end my career with doing something that was socially relevant." He worked for a year at Ujjivan Small Finance Bank before deciding to launch a microfinance company. He says, "I realized that just like the individual at the bottom of the pyramid needed to be supported, similarly, there were micro-enterprises that needed to be supported." Sharma, along with Vikram Jetley, the executive director of Aye Finance, met 350 micro-enterprises across five cities in India. Speaking to so many people across different areas helped the team understand the core challenges of MSMEs. He says, "A lot of challenges like no documentation, no typical income tax returns, lack of balance sheet or profit and loss statements and information which were assailing the sector could be solved by understanding the type of businesses or cluster-based lending that we do."

Sharma says the cluster-based lending helped them do better cash underwriting.

Creating a Social Impact

Sharma says the key difference between his startup and others is that they work in a social space, focused on creating a social impact whereas other startups are working on the commercial side of business. Apart from this, a lot of "financial modelling" is what sets them apart. He says, "We have a propensity model for understanding when is a customer likely to default, if the customer defaults, what is the probability of it leading to a loss…"

Sharma also adds it is an intense data module leveraging the technologies of artificial intelligence and machine learning which helps in recognizing the trends, and taking the best decisions based on the data. Another model helps them categorize customers in sub-categories of low-risk default and high-risk defaulters.

The size of loans distributed is small, the average amount being somewhere around INR 1.25-2 lakh. These loans are primarily aimed at fulfilling the working capital needs of MSMEs.

Smaller loans with shorter tenure size helps in maintaining credit repayment discipline, according to Sharma.

Challenges While Building an Organization

The journey of building an organization is not an easy one. Sharma says, "We were hardly into our third year when demonetization happened." The move that was introduced suddenly on the eve of November 8, 2016 that rendered INR 500 and INR 1,000 bank notes invalid, affected customers of Aye Finance incomprehensibly because cash was the basic mode of transaction for them. He says, "If cash was supposed to be sucked out of the economy, a lot of businesses had to be closed." He says rather than telling customers to not pay at all, they reduced the amount of instalment to one-third. This decision ensured that their non-performing asset (NPA) levels never crossed 2.7 per cent while other NBFCs went into double-digit NPA defaults.

Reflecting on such incidents, he says, "There are days in the life of an entrepreneur which are very lonely." What helped him sail through? "Sheer confidence and commitment," he replies.

With so many years of experience, he says of things he learnt, "You need to be bettering yourself… We are leaders in the market according to several market parameters and yet we are not happy with where we are and we want to do better." Sharma says being an entrepreneur is not easy but the rewards are phenomenal.