Aye Finance designed a unique "cluster-based credit assessment" methodology, says MD, Sanjay Sharma

Mr Sanjay Sharma

Mr Sanjay Sharma


Aye Finance is the only scaled, Pan-India player providing unsecured small-ticket business loans to a large credit-starved micro-enterprise segment.

Aye is the only scaled, Pan-India player providing unsecured small-ticket business loans to a large credit-starved micro-enterprise segment. Aye has cracked this difficult-to-lend segment with its unique cluster-based credit appraisal approach & optimally digitised phygital model. Mr Sanjay Sharma, MD, Aye Finance, shared the journey of Aye with The Hans India.

All about Aye Finance and the story behind its inception

As per a report released by the government, the credit deficit faced by the micro-enterprise sector was estimated to be INR 16 trillion. And yet these 60 million grassroots businesses managed to make a significant contribution to the gross domestic product and provided employment opportunities that were second only to the agriculture sector. The sector's resilience despite the funding challenges they faced got me thinking about a solution that would work around the thin file and lack of credit history obstacles and address their credit woes. A detailed field research involving meeting over 300 micro-enterprises spanning five cities and six manufacturing industry clusters- lac bangles in Jaipur, brass casting in Aligarh, sports goods in Meerut, shoe-making in Agra, and shoes and garments in Delhi threw up the possibility of using a cluster-based underwriting methodology for credit assessment of these grassroots businesses. In March 2014, Aye gave its first loan to a micro-entrepreneur in the ladies' shoes manufacturing cluster of Delhi, and since then, we have multiplied our footprint to 311 branches. We have offered business loans worth over INR 5000 crores to over three and a half lacs bottom of the pyramid businesses of India.

Demand for lending platforms in India

Technological advancements and their rapid adoption by lending companies like ours have helped realise novel, technology-based platforms, lean and agile business models, and innovations in delivering credit products to the historically underserved population of micro-enterprises. The aversion of traditional lending institutions to service this credit-devoid segment has enabled new-age digital lenders like Aye Finance. This leverages cutting-edge technology and alternative credit assessment models to fill the void and reach a wider customer base quickly. And I believe now that the MSME Sector is resurrecting from the impact of the Covid-19 pandemic, the credit demand flowing to lending platforms will grow even faster than projected.

Aye's support to MSMEs and their customers

Aye caters to the credit needs of the micro-entrepreneur sector that formal lending channels have historically ignored due to the non-availability of traditional business documents and lack of credit history. Aye Finance designed a unique "Cluster-based credit assessment" methodology to work around the obstacles of thin-file and lack of credit history and banking footprint. Using this innovative method of risk selection coupled with a range of AI/ML Algorithms and analytical scorecards, Aye has made credit a reality for the bottom of the pyramid businesses kept out of the formal lending landscape.

Aye offers customised small ticket loan offerings to suit the unique requirement of this segment and has become a lender of choice for these grassroots businesses.

Along with providing economic credit to power the growth of their businesses, Aye also provides beyond financing support to this sector through its Not-for-Profit arm, FAME (Foundation for Advancement of Micro Enterprises). FAME is focused on building the capabilities of these unorganised micro-businesses to scale up and become competitive by providing non-financial support in the areas of market development, production know-how and enhancing their business and financial management skills. Starting in 2019, FAME has supported over 15000 micro-entrepreneurs in the Dairy, Shoes Manufacturing, Sports Goods Manufacturing and Kirana Clusters.

MSME's current affiliation with Aye

We have provided customised business loans of over INR 5000 cores to over three and a half lacs customers.

Prior to the past Covid years, we were growing at over 50% CAGR. In FY22-23, we should be back to this growth trajectory. Moreover, we have deliberately made aggressive provisions for possible portfolio losses in the past years. I hence believe that we will see a clear runway in FY 22-23 without the restraints or hangover of the effects of the disruption.

Business in FY 2021 and expectations for FY 2022

We thought that the earlier year 20-21 was a challenging year, and we have managed with minimal setbacks this once in a century pandemic. The year 21-22 started by upping the ante with the crippling blow to the economy through the second wave. It was an extreme test for our customers and hence our business. But with the second wave now behind us, we are back on the growth path beating the projections monthly by a substantial margin. We keep a frugal approach to managing expenses, focus on high employee productivity and with the pervasive use of data science models to prioritise and optimise, we will be ending the year on positive markers.

The year that is to arrive will be a year of exceptional promise. Our micro-enterprise customers are bouncing back as business and economy return to normal (or even a new normal). As a result, we have an optimistic view of the year, and to this end, we have opened up over 100 new distribution points to benefit from this bounce.

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