NeoGrowth is India’s leading NBFC and a pioneer in SME lending based on the underwriting of digital payments dataThe Company offers unsecured loans to merchants who accept card or other digital payments from customers using its proprietary technology platform. NeoGrowth loans can be availed for a short term in a hassle free manner with the facility of daily repayment, a unique feature that differentiates its offerings for the customer.

The company was founded by brothers Dhruv Khaitan and Piyush Khaitan, who together have founded and managed a number of touch and tech based companies to serve the SME segment. Both have leveraged their deep experience in technology, understanding of the retail finance sector along with their strong entrepreneurial experiences to bring about a revolution in the fintech sector.

NeoGrowth started its commercial operations in 2012-13 and is now present in 21 major cities of India. The Company is backed by Omidyar Network, Aspada Investment Company, Khosla Impact, Accion Frontier Inclusion Fund (AFIF) – Mauritius, IIFL Seed Ventures Fund I and LeapFrog Investments.

SME WORLD in an email interaction with Dhruv Khaitan, Co-founder, NeoGrowth.

What is the basic concept of NeoGrowth?

NeoGrowth is a technology-enabled lending business that provides loans to under-served micro, small and medium enterprises (MSMEs) basis the digital spends that happens on POS machines at their outlets.NeoGrowth has pioneered an innovative lending model in India which operates at the convergence of three ecosystems – lending, urban retail and digital payments. One of the core objectives of NeoGrowth is to have a positive social impact on the financial lives of small and medium business merchants across India, more than 50% of whom are creditworthy but until now have been excluded from accessing loans based on traditional underwriting methods.

What is the credit profile of NeoGrowth? How many organisations/small businesses in MSMEs space NeoGrowth has served?

NeoGrowth has remained focused on creating a positive social impact by lending to women entrepreneurs, first generation entrepreneurs, first-time borrowers, lending to borrowers in Tier-II cities thereby helping improve the credit profile of its customers and enabling job creation. So far NeoGrowth has disbursed over INR 4,000 Crores in loans under its impact lending model and has already generated a lot of positive response by facilitating credit assistance to a massive under-served segment of Indian entrepreneurs across the country. NeoGrowth has disbursedover20,000 loans across all industry segments including Food & Beverages, Groceries, Apparel, Petrol Pumps, Clinics & Labs, Beauty & Wellness, Pharmacy, Automobile dealerships, Hotels, Footwear, Home Appliances, Opticians and many more. NeoGrowth’s portfolio is quite granular and well spread across 21 cities in India.

Explain NeoCash and how small and tiny entrepreneurs have responded?

NeoCash is a working capital loan product for MSME retailers based on the card swipes on the point-of-sale machines at their outlets. Our product design is centred around the business model of the retailers as card swipes give a good sense of the business potential, seasonality changes and customer footfalls for underwriting. Based on experience & learnings from the last 5 years, and having reviewed in excess of 35,000 customer files, NeoGrowth has validated that card swipes over POS machines are an ideal source for measuring significant business and risk parameters of a retail business. Also, this excludes any individual factor from the equation and focusses at the business potential, in terms of underwriting.Many of our borrowers have taken their first ever loan from NeoGrowth and that’s a reflection of the business model that reaches the under-served. NeoGrowth has a healthy renewal rate of over 70% demonstrating high customer satisfaction.

Daily repayment is comparatively a new concept. So far individuals have been lending small entrepreneurs as a highly unorganised group with hefty interest rates on daily repay schedules. What is the experience of NeoGrowth?

One of the differentiating features of NeoCash against other vanilla unsecured business loan products, is the daily repayment model which has worked well with our customersAround 85% of our Assets under Management (AUM) have a daily recovery model in place. This not only eases the burden of hefty monthly interest outflows for the merchant but also helps him manage his daily cashflows better. In fact, our customers have expressed their delight in the daily repayment loan product.

Does this concept have competition?

According to Omidyar-BCG Report 2018 on Digital MSME Lending, total MSME credit demand for 2018 is estimated to be USD 600 billion (INR 45 lakh Crores). Out of which, roughly 40% (~INR 20 lakh Crs) is unmet demand from informal credit sector. This presents a huge untapped market opportunity for all lenders including banks and NBFCs.There area few other digital MSME lenders including Capital Float, Indifi, IntelleCash, Flexiloans, Lendingkartapart from other traditional NBFCs whoalso cater to this underserved MSME segment.

What are the challenges you have faced and how do you overcome these?

  • The whole NBFC sector has faced challenges in liquidity post the IL&FS default crisis in Oct’18 and still to large extent continue to face challenges in fresh fund raising. In a knee-jerk reaction to the large default, most of the domestic lenders have curtailed incremental disbursals to the NBFC segment in total. Even though these headwinds have impacted liquidity in the market, NeoGrowth has managed to cushion itself by maintaining a healthy historical mix of borrowings from domestic and overseas lenders and liquidity buffers to ensure ongoing needs for disbursements.
  • The SME segment witnessed turbulent times during the FY17-18 with headwinds coming from the combined effects of demonetization and Goods and Services Tax (GST). The implementation and compliance issues caused immense pains in the system and made this segment scamper for more liquidity. NeoGrowth used this opportunity to strengthen relationships with merchants who were in the need of more liquidity and extended the needy with imperative credit lines and played a major role in their financial resurrection and financial inclusion.

What is the average recovery rate of NeoGrowth?

NeoGrowth collects payments regularly (85% of loans are daily repayment products) and 45% of loans have repayments from exclusive terminals which mitigates risk of default. This lending model ensures a high collection efficiency of over 98%. The company has daily monitoring capabilities for all loans, including loans which are non-daily repayment based. Innovative scoring and monitoring tools are used to identify trigger events which strengthens collections within as early as 3 days of non-payment.

NeoGrowth has made a creditable Social Impact. What is the next level for NeoGrowth?

Our tech & touch model along with our customer centric philosophy has helped us emerge as market leaders touching customers across all industry segments. Besides, NeoGrowth has always focussed on creating a strong positive social impact on MSMEs by lending to first generation entrepreneurs, assisting women entrepreneurs and enabling our customers in job creation and improvement of credit scores via our loans. Presently, NeoGrowth operates in 21 cities where we will continue to expand and aim to build a billion-dollar balance sheet in the next 5 years while maintaining our pillars of growth

Explain NeoGrowth vision?

NeoGrowth’s mission is to finance the small business owners by leveraging the digital payments ecosystem. Our financing should not only help our clients grow but also create a positive social impact. NeoGrowth is committed to easing credit access for MSMEs to help amplify their growth which is embodied in our tagline, “Lending Simplified. Growth Amplified.”