Aye Finance founder reveals how he convinced Google to invest in his six-year old micro loans startup

Sanjay Sharma, MD, Aye FinanceAye Finance
  • Aye Finance has recently raised funds from big investors, including Google’s investment fund Capital G.
  • The startup has been profitable for three years now and is aiming for profitability for the fourth year in a row – although the profit numbers could stay flat because of COVID-19.
  • In an interview with Business Insider, co-founder and MD Sanjay Sharma talked about what got big investors like Capital G onboard and why they are bullish about India’s micro-enterprises.
In the fintech space, one of the startups to have bagged big-ticket funding during the lockdown is lending company Aye Finance. From the second round of investment from Google’s investment fund Capital G to fresh funds from Germany-based impact investor, Invest in Vision, the last few months have kept the six-year-old startup busy.

In an interview with Business Insider, co-founder and MD Sanjay Sharma talked about what got big investors like Capital G onboard and why they are bullish about India’s micro-enterprises.

Profitability and data - the driving factors for Capital G

Soon after Capital G first invested in the startup two and a half years ago, Sharma found himself in a machine learning camp for the fund’s top 10 companies. Sharma had then walked up to the top executives at Capital G and asked how Aye Finance made the cut for an investment. The answer was data.
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“They told me that in their discussions with several companies from payments to e-commerce, the answer to how they will make money was always that they will sell the data to a lender. So, Capital G decided to place their bets on a lending startup,” Sharma told Business Insider.

He added that for India’s six crore micro-enterprises, the gap in the lending segment is estimated to be ₹16 trillion, and that poses a huge opportunity for them.

Aye Finance’s use of data is also what got the attention of top investors. “Contrary to the thought that lending for micro-enterprises is still in the brick and mortar phase, we have very strong data science capabilities. And a lot of the decisions are based on machine learning and data interpretations. This advancement in the way we use data in the unorganized sector is something investors have seen in very few companies,” he said.
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It also helps that the startup has been profitable for three years now and is aiming for profitability for the fourth year in a row – albeit the profit numbers could stay flat because of COVID-19. “If not for the pandemic, we would have expected our numbers to be double than last year,” he said.

Aye Finance - Financials

YearRevenueProfit
FY 20₹415 crore ₹40 crore
FY19₹210 crore ₹35 crore
Source: Company data

Sailing through the COVID-19 pandemic

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For Aye Finance, the strategy through COVID-19 has been to invest in low-risk areas to keep the company afloat. Sharma explained that their portfolio was divided into kinds of industries, and their data research team found that only 15% of them were hugely impacted by the pandemic. “These are typically non-essential manufacturing companies. The rest of the portfolio had a moderate or low impact,” he said.

While Sharma said it was difficult to paint everyone with the same brush, they soon realised that micro businesses needed little money to survive the pandemic, and as they are frugal, even with a little bit of funding, they can get back on their feet. “There was a change in the way underwriting was done, while the basics remained the same it also became cluster-based. One of the criteria became the geographies where the COVID impact was yet to come in, and businesses were at low risk,” he said.

Aye Finance’s loan book
Active loan book150,000 loans worth ₹1750 crore
Loan duration12-24 months
Average ticket size₹1.25 lakh
Interest 22-28%

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Sharma is bullish on their business strategy and sees a huge growth opportunity in India. “India has a huge potential when it comes to lending because the penetration of credit in India is extremely low. If India has to be a developed economy, it needs to have a much better flow of credit for people who are running businesses,” he said.

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