(Excerpts from the write-up in The Smart CEO magazine)
NeoGrowth set up in the year 2013 was built on an important insight that traditional underwriting methods in India exclude more than 50 per cent of credit worthy small and medium enterprises. Hence, NeoGrowth does digital lending to consumer facing small business enterprises by providing business loans repaid by card receivables, e-commerce sales and other non-cash payments. “More than half of the loans by NeoGrowth are less than Rs.1 million and greater than 80 per cent of loans have been given to proprietorship and partnership firms,” says Mr. PK Khaitan (PK), Managing Director of NeoGrowth.
The company’s non-traditional business model identifies and serves credit-worthy merchants, who otherwise get excluded by traditional underwriting methods.
While the company offers credit to the small business enterprises, it has its own filters to assess their credit worthiness. Some methods it uses are its unique customer acquisition channels (direct agents, referral Agents and telesales), new payment datasets for credit assessment, non-traditional scoring, and dynamic repayment and automated collections to identify and serve these potential credit-worthy merchants. In fact, it has enabled improvement in credit history, financial inclusion, encouraged entrepreneurship and business growth for many of its customers.
Filling the gaps
The NeoGrowth team believes that there is inadequate credit footprint and financial history for a customer and, hence, banks face a tough time in credit assessment. Therefore, the company uses alternative data for credit assessment. This apart, there is limited working capital fund with strict repayment schedule and to counter this, the company came out with automated collections based on business performance. Finally, traditional banks have lengthy processes with stringent documentation. Daunted by this lengthy and cumbersome process, NeoGrowth came up minimal documentation with doorstep service and quick funds. “The digital payment space is bigger than what we imagined,” says PK. The current environment has so many data sources (online media, offline datasets) and interfaces in place. India is going digital through initiatives like India Stack, Unified Payments Interface and there are Government policies for Digital India, Cashless Society, make in India, Start-Up India etc. “All this means a very large market opportunity. NeoGrowth is looking at leading this market in India,” adds the founder. But all these come with its own set of challenges. The biggest is getting your customer on-boarded with the idea of digital lending. Since, the concept is new in India, the first onboarding stage is the most crucial stage. “Hence the cost of customer acquisition must be kept minimal to scale the business,” says PK. NeoGrowth’ marketing strategy revolve around digital marketing initiatives to reach its consumer segment. It does campaigns integrated with its traditional channel to have a broader but relevant visibility. “We engage with channel partners at different levels to promote NeoGrowth as an innovator in SME digital lending space. We do SEO, SEM and have a responsive website to maximize our reach,” adds PK. With its marketing strategies in place, the company aims to be a niche player in the digital lending space over the next few years. “We want to be the leader in terms of market share in digital lending. To achieve this, we are building a sustainable competitive advantage around achieving scale, favourable unit economics, and superior customer experience and eliminating balance sheet friction,” said PK on a concluding note.