Financing the ‘Missing Middle’

Financing the ‘Missing Middle’

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Vistaar Financial Services is striving to create financial inclusion for the ‘missing middle’, typically family businesses run by entrepreneurs who deal with cash. So far, it has disbursed Rs. 1,100 crore in loans to over a lakh customers through 200 centres across India.

When Brahmanand Hedge and Ramakrishna Nishtala founded Vistaar Financial Services in 2010, their goal was not to find a spot in India’s already cluttered fintech space, but to strive towards financial inclusion, particularly among businesses that operated in the MSME (Micro, Small and Medium Enterprises segment. Think Kirana store, a power loom or a brick kiln.

In numbers, Vistaar was looking at 36 million enterprises with a total unmet need of Rs. 2.9 trillion. Of course, while banks and NBFCs tried to address some of the sector’s credit demand, primarily of the medium and large businesses and of the productive poor (served by microfinance institutions) Vistaar envisioned a majority of the total MSMEs segment, the self-help groups or the missing middle, as its addressable market; 76 per cent of the market share, to be precise. “We were looking at family businesses, run by entrepreneurs who deal with cash. And, a key challenge we were faced with is, there is no documentary evidence of their revenue or cash flows and they have high loan requirements,” explains Nishtala.

One of the biggest challenges we faced was in identifying the right team, especially because we served a segment that hadn’t been addressed before. To tackle this, we first brought together a core senior management team, whose ideas we aligned with the company’s vision. Later, we on-boarded and trained next level of talent to work on ground.

Assessing Credit Worthiness

So, how did they arrive at a methodology to evaluate the borrower’s credit worthiness? As a first step, the team held an in-depth study of eight different sectors, such as hotels & bakery, dairy and allied businesses, home-based enterprises, Kirana stores and more, to arrive at a credit methodology. Customised to each sector, it arrived at a mechanism wherein it first assesses the borrower’s income by evaluating non-traditional documents for income, ability, intention, business sustainability and credit behaviour. Then, it determines the business’ credibility through reference checks in the supply chain, neighbourhood and other sources, and finally, it initiates a loan against collateral.

While refinement of product and credit methodology is an ongoing process at the company, it currently offers four products on the platform; Small Business Hypothecation Loan (SBHL) of up to Rs. 95,000 with a tenor of two years, Small Business Mortgage Loan (SBML) of up to Rs. 25 lakh with a tenor of five years, bill discounting with loan up to Rs. 25 lakh and a 90-day tenor and, Equipment Finance with a loan up to Rs. 25 lakh over a tenor of four years. “While bill discounting is targeted at manufacturers with an annual turnover of Rs. 1 crore, equipment finance is designed to enable individuals, partnership or proprietorship businesses purchase machinery,” shares Hegde.

Financing Its Growth

With loan disbursements also came a need for Vistaar to begin seeking external funding to fuel its venture. It raised its first round of US $3 million (before 2011) from Sama Capital and Elevar Equity, and followed it up with a US $1.5 million round in 2011. In 2012 again, it raised US $8 million from Lok Capital and Omidyar Network. “From here on, we wanted to explore commercial funds from large investors. That’s when Westbridge Capital came into light,” adds Nishtala. This was in May 2014, when Vistaar raised a Series C of US $27.37 million from Westbridge Capital, soon following it up with an internal round of US $37.58 million, led by existing investor Westbridge Capital and earlier investors, Omidyar and Elevar Equity.

During the last funding round, its co-founder, Hegde had pointed out that the money would be channelized towards increasing its portfolio to Rs. 2,500 crore in the next three years, along with an expansion (of its centres) from 150 at that time to 275 in two years. “While this continues to remain our focus, we also plan to double the number of customers we serve from the current 1,30,000 across MSME segments,” adds Hegde.

While being an NBFC institution serving the ‘missing middle’ stands as a key positioning for Vistaar, it counts its technology and digital backend to be its key strength and game-changer. “All our processes are paperless, digitised and automated. Take for example, our in-house IT platform; it can process 7,000+ transactions in a month and enable electronic disbursement of loans via banks, not only bringing agility into the process but also minimising risk for customers,” explains Hegde.

With psychometric tests (to evaluate a borrower) and deeper adoption of data and analytics being the key focus for Vistaar going forward, its co-founders are confident that anyone wanting to replicate Vistaar’s model in the market will take at least three to four years to stand neck-to-neck. “We want to be a leader in this segment and specialise specifically in the MSME financial space,” concludes Hegde on an ending note.


Founders: Brahmanand Hedge and Ramakrishna Nishtala

Year: 2010

Investors: Sama Capital, Elevar Equity, Lok Capital, Omidyar Network, Westbridge Capital

Lenders: IndusInd Bank, SIDBI, Federal Bank, RBL Bank, Hinduja Leyland Finance, IFMR Capital and Sundaram Finance, to name a few

Impact: Served 1,30,000 customers and crossed loan portfolio of Rs. 1,100 crore

Presence: 200 centres

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