Finance has typically been one of the areas of concern for the SME sector. One of India’s leading finance company, Dewan Housing Finance Ltd (DHFL), has lately expanded its portfolio by entering into SME lending segment. SMEpost.com caught up with Harshil Mehta, CEO of DHFL, in an exclusive conversation. Here are the edited excerpts.
Q: DHFL diversified into the SME lending segment recently. How has it taken off? What is the current size of DHFL’s SME lending business?
A: We have received an encouraging response for our SME lending business. This segment has grown to over Rs 1,200 crore contributing around 2% to the AUM within a year of its launch. We intend to grow this segment at 25-30% year-on-year and increase it to Rs 5,000 crore in the next 3 years.
Q: Is there any specific focus on any SME cluster by DHFL? What has been the company’s foot-print so far? Also, what is the number of SMEs that is being currently serviced by DHFL?
A: Under SME financing, we provide loans to SMEs engaged in wholesale, retail, manufacturing and services. We also provide business loans to SMEs to meet their short term working capital requirements. This is besides loans for plant and machinery to manufacturing units.
Currently, we have a customer base of 1,200 small manufacturing companies, which are into fabrication, printing, auto spare part making and plastic moulding businesses. We also serve small hospitals and doctors by providing finance for their equipment and machinery requirements and expect a high growth from the tier 2 and tier 3 towns.
Some of the key offerings of DHFL to the SME sector include:
- Property Term Loans- To meet all business expansion and working capital requirements
- Plant and Machinery Loans – To meet fund requirements for the purchase of Plant & Machinery
- Medical Equipment Loans – To meet fund requirements for Medical Equipment
- Business Loans – Unsecured loans to meet working capital requirements
Q: Finance has always been a challenge for SMEs. What is your view on this and how DHFL wants address this issue?
A: SMEs continue to struggle to get loans on easier terms from financial institutions due to the perceived risk associated with their business, lack of collaterals etc. We are of the view that private banks and HFCs must play an expanded role to provide financial support to the SME sector.
DHFL is providing both secured and unsecured loans to SMEs in sectors of wholesale, retail, manufacturing and services. These include loans for meeting short term working capital requirements.
The company is also building a team of sales professionals across locations to reach out to customers and reduce the turnaround time on loan applications. This is also helping us in offering competitive rates to customers as the reduction in intermediary costs can be passed on to customers in the form of lower borrowing cost.
We are of the view that innovation is the route to building a robust SME sector in India. At DHFL, we are coming up with innovative products and services for SME borrowers to increase our market share in the SME Lending segment. We are also in the process of developing digital channels so that our SME customers can directly access the firm’s lending services without having to come to a branch.
Q: How do you manage the risk of lending loans to these small businesses?
A: Under SME financing, we provide both secured and unsecured loans to SMEs in sectors of wholesale, retail, manufacturing and services. Secured loans are backed by property as the main security.
We have an in-house team of professionals who are well versed with the nuances of the industry. This helps us in mitigating risks effectively. Our SME lending vertical is well supported by a management team dedicated to the SME business for excellent operations management and quicker turnaround of customer concerns.
This is further supported by the dedicated processing centres for greater efficiency and risk management. An in-house credit and legal team for appraising each application besides an in-house team of civil engineers for technical evaluation further helps us in managing risks associated with these small businesses.
Q: What is your opinion of Credit Ratings? Do you think Credit Rating of SMEs can help disburse money to needy SMEs quickly?
A: Credit Ratings are important for SMEs as independent risk evaluation of their business by an unbiased third party increases the credibility of their business. This helps them in accessing finance easily from formal sources and opens new business opportunities for them with the Government, MNCs and Corporates.
A good credit rating can help SMEs secure faster and cheaper credit as rating agencies have tie-ups with banks that offer preferential interest rates based on the ratings received. SMEs with a good credit rating also have the flexibility to approach other banks and negotiate a better rate as compared to the one provided by the existing banker.
Moreover, highlighting the strengths and weaknesses of a business by the rating agency gives SMEs an opportunity to make further improvements.
Q: How do you see the SME sector’s growth in the next 3 years?
A: The contribution of the MSME sector to India’s GDP currently stands at 8 per cent and is growing at a rate higher than the projected GDP growth rate. The contribution of the MSME segment to the GDP in some of the global economies is in the 25-60 per cent range. The MSME sector will further generate 50% overall employment across agricultural, manufacturing and services sector.
The venture of NBFCs in the SME lending space and the launch of the Government initiatives like the Credit Linked Capital Subsidy Scheme, The National Manufacturing Competitiveness Programme etc. will make the much needed finance accessible to the sector.
MSMEs have a key role to play in the revival of the manufacturing sector and increase its share in GDP from existing 17% to 25%. In this context, government’s ‘Make in India’ and ‘StartUp India’ movement are significant steps to catalyse entrepreneurship and restart private investment into the economy which is witnessing slowdown in investments from corporate India in the face of risk aversion.
Redefinition of investment limits, higher technology adaptation and facilitative regulation will further ensure that the SME sector plays a key role in the success of the ‘Make in India’ initiative and also help in creating job opportunities.
