This Listed NBFC Is Propelling Small Businesses Moneyboxx Finance lends to borrowers across sectors though with a focus on essential goods and services

Historically, NBFCs are active in sectors of the economy wherein banks are unable to concentrate., and the sectors wherein banks are unable to do well is where NBFCs do well. One such sector where NBFCs have done well is the microfinance segment.

Moneyboxx Finance Ltd (MBFL) started operations in February 2019 and expanded its presence to 22 branches across four states with an AUM of about INR 57 crore as of 28 February 2021.

The company offers easy, cost-efficient, and technology-driven financing solutions to deserving micro and small enterprises across sectors with unmet credit needs, often those graduating from group borrowing (MFI) to individual borrowing. It is estimated that micro-enterprises face a credit gap of INR 8 trillion as the flow of credit from banks and NBFCs is restricted by unique challenges in underwriting: lack of credit history, formal business documentation, and collateral.

In an interaction with Entrepreneur India, BSE-listed NBFC MBFL's co-chief executive officer Mayur Modi shared his investment philosophy that he follows at the company, "I primarily focus on understanding the customer/borrower well enough by evaluating their ability to repay (cash flows), intent (credit history/reference checks) and traceability (business and residence stability)."

The company has built a robust portfolio that has remained resilient amid pandemic thanks to its strong underwriting standards, tech-enabled decision making and analytics, and superb collection efficiency.

In what could be seen as an example of India's agriculture and allied business doing well despite the harsh economic impact of COVID-19, MBFL that is focused on lending to the dairy sector has reported high repayments even during the government-mandated loan moratorium between April and September 2020.

India is a country of shopkeepers and small businesses. The country has 65 million small businesses across India. Of that, only 8 per cent of them have access to any form of organized finance. There is a huge opportunity here.

MBFL has been lending to borrowers across sectors though with a focus on essential goods and services (kirana) which resulted in negligible credit loss for the company and high collection efficiency of over 95 per cent during the moratorium and over 99 per cent from September 2020 onward. During the pandemic, MBFL's lending focus marginally increased towards livestock but as the COVID-19 situation is improving, exposure to the non-livestock segment is expected to increase back to pre-COVID levels of about 50 per cent. MBFL's credit evaluation process is proven even under COVID and broadly remains the same as pre-COVID.

MBFL operates in four states—Rajasthan, Madhya Pradesh, Haryana, and Punjab—and has a loan book of close to INR 50 crore. It mainly offers unsecured credit in the INR 50,000-300,000 ticket size and its major customers are dairy entrepreneurs as well as small-scale local trading and manufacturing businesses.

Credit stress in the system has increased since the outbreak of the pandemic and it may have scarring, long-term effects on certain sectors. Bank's GNPA may increase to 13.5 per cent by September 2021 from 7.5 per cent in September 2020 in a baseline scenario, as per the Financial Stability Report released by RBI.

While the NBFC sector has had strong growth in the last decade, the pandemic has exposed the fault lines and put in spotlight that the getting the basics right: understanding credit risk properly and managing it prudently is key to survival and growth. "We believe the turmoil will severely impact the NBFCs whose underwriting and collection processes were weak while fundamentally stronger NBFCs will emerge stronger," Modi said.

The former chartered accountant commented, "The outbreak of pandemic and subsequent lockdowns affected our growth and disbursement plans in the initial part of the year, but we have successfully come out of it with business picking up from Q2. Despite the pandemic, we have been able to diversify our funding sources and lower our cost of borrowing by adding 12 new lenders in the second half of this financial year and we doubled our branch presence to 22 in Q3FY21. Continuous support from existing and new lenders is a validation of our strong underwriting standards, collection efficiency, and the management team."

The platform maintains that they grew their AUM from INR 29 crore in FY20 to about INR 57 crore as of February 2021 and their medium-term target is to reach an AUM of INR 1,000 crore as they expand their presence to more states from currently four states.