TechGraph recently sat down with Subrata Das, Chief Innovation Officer at U GRO Capital to understand how U GRO Capital is shaping the NBFC sector through its innovative solutions.
TechGraph: How is U GRO Capital utilizing its sectoral expertise and digitalization to solve the unsolved credit gap?
Subrata Das: U GRO Capital’s underwriting framework takes into account the vast diversity across SMEs and the fact that a one-size-fits-all approach is not suitable; there is a differentiated approach for manufacturing companies (e.g. Light engineering, Food processing /FMCG) vis-à-vis Education and Healthcare. Each sector in turn presents a large universe with pockets of homogeneity. For example, within Healthcare, a pharmaceutical distributor is assessed differently than a nursing home, or in Food processing/ FMCG, a trader is seen differently than a retailer.
The framework is based on sector-specific statistical scorecards along with a policy framework that lays out thresholds for key financial parameters at a subsector level. This results in product programs that cater to a wide spectrum of customer segments with different natures of cash flows.
Larger-sized entities can be assessed based on formal income documents; small businesses can be assessed based on transaction data from bank statements and GST transaction reports. Microbusinesses in tier II and III locations can be assessed using subsector-specific templates even if they don’t have formal income documents.
Digital processes backed by efficient use of data and technology are central to our business model and it’s an ongoing journey that started at inception. In terms of the digital stack – we have created a customized loan onboarding platform that produces an in-principle decision in 60 mins – and uses a custom rule engine to host scorecards and the entire policy framework.
We have consciously designed for a “zero data loss” storage architecture, where every bit of customer data is stored for future analysis in a central repository. This is bolstered by the API partnerships where bank statements, tax reports, and credit bureau reports are converted to machine-readable data. We believe cash flow-based underwriting and 100% digital processes will lead us to rapidly scalable lending solutions.
TechGraph: How AI/ML and analytics are helping in the revolution of credit assessment towards financial inclusiveness?
Subrata Das: We have spoken about our patent-filed sector-specific sectoral scorecards. We are now live with the second version of our scorecard system – Gro Score 2.0 – which combines the credit bureau of the entity and co-applicants with the bank statement information, to create an approval decision. This will potentially enable rationalizing/ re-focussing underwriting effort more sharply to improve throughput as well as TAT.
From a portfolio assessment perspective – during the lockdown period, we have estimated the Covid stress on the portfolio using a combination of macroeconomic data on sectors, financial data from multiple sources, and on-ground impact feedback from direct customer surveys. Data-driven insights are used to perform portfolio stress tests and generate data-driven proactive early warning triggers.
Based on an understanding of the sectors and competency with data, we have created several cashflows based lending programs with our partners, where customers credit history is combined with transaction history available on the platform to offer a credit decision and loan eligibility – with a digital fulfillment model that does not require physical due diligence in the traditional sense.
For example – in Supply Chain Finance, today we have a credit program for Sellers based on their banking and GST transactions only, without having to assess the ledger of transactions with the anchor. We have made major strides in this area and as market conditions improve, we will be well placed to accelerate business acquisition on such models.
TechGraph: How is U GRO Capital leveraging technology to enhance the customer experience?
Subrata Das: There are several areas of application in the customer onboarding process, for example, OCR of documents, signature matching, and facial recognition during video KYC. The application of predictive modeling in credit assessment is well known, and it is witnessing rapid evolution in method and approach, as data sources are getting richer.
AI /ML is also an investment area, where we are building capabilities that will be used in the future. We have hit a few early milestones; investment and IP creation will continue, and these solutions will be productized gradually in the days to come. We have invested in globally acclaimed statistics and machine learning software.
We are a completely cloud-based platform with global standards of network infrastructure and information security. We will remain in a state of readiness to switch more applications to machine-mode; the timing of the same will depend on the maturity of the models over economic cycles as well as market conditions.
TechGraph: What is the important role that fintech has to play in the revival of MSMEs?
Subrata Das: Fintechs take the lead in fostering innovation & re-imagining customer experience. It is not surprising that most of the innovation in digital services and banking products have been brought about by fintech or institutions which use fintech. Large banks account for the majority of the credit exposure but they strike a balance between process, compliance, and risk management.
In the current era, we are witnessing a constant expansion of the target segment – breaking into deeper markets and newer credit profiles, and fintech plays a crucial role in this systemic push.
Strong collaboration between traditional lenders and fintech is happening every day, with constant innovation in distribution and risk-sharing. U GRO Capital runs multiple co-lending programs with partner fintech, catering to the credit needs of MSMEs across sectors.
TechGraph: What are the technology trends which will shape the SME lending space?
Subrata Das: BFSI sector in India has seen a rapid advancement in areas covering automation of processes, data processing data, and decision sciences. Today it is unsurprising that loans are disbursed in minutes, systems are cloud-based and ML/AI is shaping the customer experience.
In the context of SME lending, the advent of OCEN protocol is seen by the entire industry as a groundbreaking initiative that can solve the credit needs of the MSME sector. India’s MSMEs face a large credit gap as traditional lenders with a lower cost of funds look for formal income documentation and collateral, which is not always available to the MSME. On the other hand, NBFCs who cater to this segment are constrained by a higher cost of capital and offer loans only at higher interest rates.
OCEN allows multiple players in the ecosystem to participate in the framework as Loan Service Provider (LSP); this means multiple digital data sources can be leveraged at once by lenders, and scalable and de-risked credit penetration would be possible through cashflow assessment, instead of formal income assessment.
There are a host of emerging products that will bring about the personalization of offerings as well as reduction of processing times. They include ML/ AI-based applications to solve a wide array of uses cases such as predictive sciences, reading documents through OCR, multi-lingual bots, Robotic Process Automation, use of Blockchain in trade finance. Information security is a rising need in these times and an active area of research.
TechGraph: How will initiatives like GeM Sahay revolutionize the small business lending segment?
Subrata Das: U GRO Capital is one of the seven leaders who are participating in GeM Sahay in wave one. To be able to participate in this program, U GRO has created an innovative digital program which leverages borrowers credit bureau history, GST transaction report and previous order fulfillment record on GeM platform, to create a financing solution for MSMEs across 129 locations without any physical documentation or face-to-face interaction with the customer; the underwriting and disbursement happen digitally in the manner of minutes.
GeM Sahay is one use case of OCEN and brings a scalable financing solution for procurement of government offices which is slated to reach a turnover of 3 lakh crores. In this way, a large number of MSMEs, the majority of whom are sole proprietors and will find it difficult to procure a credit facility from banks, will now be able to access easy and affordable formal credit. GeM Sahay is a pioneering initiative and a flagship example of cashflow-based scalable digital lending.