Driven by single, purposeful goal – investing in the smallest dream – Magma Fincorp’s 26 years’ experience as financier has enabled the company to extend support to the masses that have been excluded by the traditional financial systems. When it comes to getting the business up and running, Magma offers SME Loans with no primary or collateral security requirements.
Harsh Chamria, Business Head, SME Business, gives an insight of Magma’s engagement as an SME lending platform, to SMEpost.com in an exclusive conversation. Edited excerpts:
Q: We understand that apart from various consumer finance products, Magma Fincorp is also engaged in SME Finance. How has this business taken off?
A: We started it as a pilot project in FY08 for unsecured business. We provide SME loans from Rs. 3 lakh to 2 crore for your various business requirements. Today it is the fastest growing product in Magma’s portfolio. It stands at about 9% of Magma’s loan book and growing at 40% YoY. We started LAP business 2 years back and it’s growing at 14% YoY.
MAGMA SME LOAN OFFERS
- Loans with no primary or collateral security requirements
- Loans from Rs. 3 lakh to 2 crore – the largest collateral-free loans in India
- Loans for a wide range of businesses and purposes
- Loan tenure ranging from 12 to 48 months
Q: Is this a focus area for Magma, given government’s aggressive growth & development agenda for the sector?
A: Yes, it is definitely a focus area for us. Moreover it hits the core of our motto: “Investing in the smallest dream”; we want to become one of India’s most innovative SME/MSME financiers, focusing on informal business segment.
Q: What is the current size of the company’s SME lending business?
A: Magma SME Finance business stands at approx Rs. 4000cr currently (unsecured and secured combined)
Q: What has been the company’s foot-print so far?
A: We are currently focused on expanding our reach. Currently we have Unsecured biz in about 60 locations, and secured in 100 locations. We are working on expanding our unsecured to at least secured locations in next 12 months and expanding secured locations to rest of Magma branches (250+) in next 15 months.
Q: How do you manage the risk of lending loans to small businesses?
A: Focusing on the fundamentals of business is most critical. We study cash flows very closely – Financials, bank-statements, business vintage, promoter background, customer concentration, financial ratios, working capital/inventory situation, investments in assets, salaries paid, taxes paid etc. Also we do digital checks to cross check for fraud or any lawsuits, social media, RoC, PAN, Tax, etc.
With 8 years of experience in underwriting SME loans, and 26 years of the group’s knowledge, we have a pre-defined list of risk factors in each loan-enquiry. If the overall risk is above the required threshold, we decide to give the loan. But with each risk factor, we increase the required pricing. These rates have been defined on the basis of mathematical probability of default.
Q: Finance has always been a challenge for SMEs. What is your view on this and how Magma wants to address this issue?
A: Sure, small ticket size makes it operationally difficult for banks to cater to, but segment is getting lot of attention now, given the tepid corporate lending environment. TAT, convenience, flexibility in lending/repayment are a few options through which Magma is addressing the issue.
- TAT: We can approve a loan after getting the documents in 4 hours time, and have in past disbursed loans up to 20 lakh in one day also. Although of course, given comprehensiveness of information received from customer, the average TAT is longer.
- Convenience: We have innovated several ways to get information from the customer at the click of a button (financial statements, bank statements, tax returns, etc), and therefore it is much easier for them to get a loan from us.
- Flexibility: We understand the Indian SME needs flexibility in repayment instruments, repayment schedules, disbursal bank accounts, etc. We judge the risk of a customer at a promoter group level and accordingly go the extra mile to provide them flexibility to meet their customized needs.
Q: If SME lending has to grow, what are the critical success factors in your opinion for it to happen?
A: As I’ve already mentioned that TAT, convenience, flexibility in lending/repayment are options to cater the problems of SMEs. Meeting the unmet customer need on these 3 points is critical. It needs to be a hassle-free and genuinely pleasurable process.
Q: How do you find digital platforms helping build the SME ecosystem?
A: We believe that there are elements of FinTech that are very relevant and helpful in the Indian SME financing context; particularly rule-engine based underwriting. Data-collection through API’s also removes operational hassle, and crashes TAT.
However elements like customer-acquisition, loan-servicing, and receivables-management will take some time to be digitized. Our systems are ready to tie up with FinTech partners for enabling these elements. We believe that our 7 year history of giving unsecured loans, data-warehouse of financial data, and the ability to mine this data to build a machine-learning based rule engine, sets us up very well to make a positive impact in the world of Indian SME financing.
