"SMEs Often Struggle To Have Access To Finance" : Co-founder OkCredit

In an interaction with Urvi Shrivastav, Editorial Lead, BW CFO, BW Businessworld; Harsh Pokharna, CEO and Co-founder, OkCredit speaks about the financial struggles of small and medium enterprises (SMEs) and how OkCredit helps them overcome these.

Can you share details on the lending model and its performance over the past 12 months

SMEs often struggle to have access to finance or formal finance sources, OkCredit aims to bridge this gap of accessibility of capital for its merchants. The company has been able to grow its merchant’s user base across the country through its OkCredit Digital Udhar Bahi Khata app. This has enabled the company to have an in-depth understanding of its merchants, recognise their need for capital, and focus on providing a solution. Based on the data collected, the company also witnessed that many merchants on the platform rely on securing credit from informal sources. Based on these insights and repayment behavior of the merchants, OkCredit offered a value added service to its merchants by entering into the lending business as well as a monetization method for its business. Taking this as a step forward, over the past one year the company has witnessed a significant transformation and has increased focus on its lending model by understanding this credit requirement of the merchants. The company is using digital solutions to help SMEs and SMBs with short-term financing needs through their NBFC partners.

OkCredit has had a total disbursal of more than 100 Cr (Monthly disbursal of ~15Cr-20Cr per month at present) in the past one year. The ticket size of these loans are between 25k- 100K INR. The company has disbursed more than 20,000 loans where they have less than 2% NPA numbers. OKCredit has been able to achieve this growth in the past one year organically while focusing on improving its lending strategies.

Please share highlights on the company's journey from an online bookkeeping app to a digital lender.

OkCredit started as a digital ledger app for small business owners, merchants, kirana shops and their customers to facilitate the recording of credit/payment and debit/receipts transactions digitally all over India. The software is offered free of cost and no additional incentives are offered to the users to be on the platform and record their transactions. The company has grown and has added new users to its platform, it currently has over 3 million merchants using the platform, and these merchants are recording transactions for around 15 million customers every month.

With such merchants joining the OkCredit platform for recording their everyday debit and credit transactions, the company has access to such a big user database. It can acquire a significant quantity of data on the transactions, payments, repayments and receipts that occur on their platform and get important insights. It enables the company to assess the creditworthiness and assign an informal credit score for such merchants based on their discipline, good payment behavior and transaction history.

OkCredit identifies high credit worthy merchants and facilitates such merchants with loans when in need of financing through their NBFC partners. Since such data is not available with other informal lenders in the market, this gives an edge to OkCredit in its lending business. This also helps in building a predictive model, which can identify the NPA before and reduce the risk of non-payment. OkCredit was able to achieve a NPA to be as low as 2%, which is much lower than the industry standard.

Can you share details on OkCredit’s association with NBFCs

OkCredit is working with a couple of partners right now, based on the lenders’ preferences we have capabilities to design the end to end user journey. We are getting a lot of traction from some big lenders in the industry given our performance so far in the lending space and we are looking to take anywhere between 3-6 more partnerships live in the next quarter.

OkCredit providing access to credit to an unserved and underserved segment- Can you share additional details here

OkCredit has 3 million merchants using their platforms and these 3 million merchants are recording transactions for around 15 million consumers every month. Restricted data from traditional documented sources may prevent customers from obtaining loans. The company acquires a significant quantity of data on the transactions, payments, and receipts that occur on their platform and get important insights. It enables the company in assessing the creditworthiness and assign an informal credit score for such merchants based on their transaction history.

OkCredit can identify credit worthy merchants and facilitate them with loans when such merchants are in need of funds through their NBFC partners. This helps OkCredit achieve an edge over other lenders in the market. This helps in building predictive models based on the merchant’s behavior and create advanced risk assessments, which helps reduce NPA. OkCredit has been able to reduce its risk using this predictive model to achieve an NPA as low as 2%.

Can you elaborate on the trends that are seen in Kiranatech?

The Kirana merchants faced a series of challenges such as the collection of receivables from customers, working capital requirements, customers moving on to the online platforms for convenience and intense competition from e-commerce giants. In addition to the challenges, disruptions caused by the pandemic had led businesses to adopt digital solutions, which is when the term 'Kiranatech' became popular among investors. The kirana tech space witnessed a lot of developments and has matured with an increasing number of merchants looking for digital solutions for their bookkeeping and transaction recording needs. Overall, the Kiranatech brings a technology mechanism that brings efficiency to the Kirana value chain or their day-to-day functioning.

A number of Kirana stores across the country are using either one or several of these tech solutions. Among these, digital payments are the one that has so far found the widest acceptance thanks to the game-changing technology in the form of UPI. Technologies like Udhar ledger or QR codes have survived even after the dust has settled as they have created a value proposition for the merchants. And apart from these companies, any technology that is promising to enhance competitiveness, help Kirana merchants make greater profits, and create value for end users will survive the economic uncertainty.

Can you share details on the company's way forward plan?

The company will continue to focus on the lending business where it facilitates the merchants with credit through NBFC partners. OKCredit has been able to achieve this growth in the past one year organically while focusing on improving its lending strategies. With this, the company aims to attain profitability by disbursing upto 150Cr in the next 6 months and up to 500Cr in the next 12 months.