Bangalore-based lender to small and micro enterprises Vistaar Financial Services has raised Rs 40 crore (about $7.2 million) as part of a Series B round of funding led by Lok Capital and Omidyar Network. The stake picked up by the investors has not been disclosed. Existing investors Elevar Equity and SVB India Capital Partners, now known as Saama Capital, have also participated in the current round of funding. The company will use the funds to grow its ground presence from 30 branches at present to 180 and projects a portfolio of over Rs 1,600 crore ($288 million) in four years.
“The last 15 months have been spent proving the business model, chiefly in Karnataka and Tamil Nadu. We now want to enter new markets and have Maharashtra on the radar for this year,” Ramakrishna Nishtala (left in the photo), Vistaar co-founder and COO, told StartupCentral over a telephonic conversation today. Nishtala teamed up with former Fullerton India Credit Company (a Temasek Holdings backed non-banking finance company) colleague Brahmanand Hedge in early 2010 to start the company. “We were part of a team at Fullerton that was piloting a rural-focused project. The project had to be put on hold for certain reasons and we decided to venture out on our own,” he said.
Vistaar raised a reported Rs 15 crore from Elevar Equity and SVB in May 2010, which enabled the startup to roll out its first 14 branches in Tamil Nadu and Karnataka. The company provides loans to the underserved micro and small enterprise market, which is estimated at 26 million enterprises and Rs 275,000 crore in potential loans, according to the Ministry of Micro, Small and Medium Enterprises. Less than five per cent of such enterprises have access to credit for banks and formal financial services companies, by the ministry’s estimates. The typical Vistaar borrower would be a powerloom operator, kirana store or a small restaurant. “The problem with such enterprises is they have a lot of cash transactions and usually lack the kind of documentation required to avail of loans from the formal sector,” said Nishtala.
In order to assess the credit worthiness of its target borrrowers, Vistaar studies specific high-potential sectors, for example powerloom operators, and identifies the specific kind of documentation that is used by clients in that sector to keep track of their business transactions. For instance, most powerloom operators tend to use delivery notes, which Vistaar in turn tracks to ascertain the cash flow position of the business.
Since its pilot launch in April 2010, the company has disbursed loans worth over Rs 60 crore. It charges a weighted average interest rate of between 26.5 per cent and 27.5 per cent per loan and the average tenure per loan is 42 months. Loan ticket sizes range between Rs 30,000 and Rs 20 lakh. For loans that are more than Rs 60,000, the borrower has to provide some kind of property as collateral. Loans less than Rs 60,000 require borrowers to hypothecate assets. In the next four years, the company expects to roll out its services in at least eight states, including Madhya Pradesha and Gujarat. It currently employs 330 people.
“We recognize the importance of innovative credit and individual lending to the informal segment. We believe Vistaar’s approach of customized and specialized financing is a much-needed and more sustainable solution to serve this segment,” Lok Capital partner Vishal Mehta said in a press release issued today. Lok is a Gurgaon-based social venture capital fund backed by the Rockefeller Foundation and is currently investing from a $65 million second India fund.
Vistaar competes primarily with the unorganized sector, consisting of traditional moneylenders, and also with organized players such as Shriram City Union Finance. However, while micro loans to micro enterprises part of Shriram’s business, Nishtala says that Vistaar’s differentiation lies in its singular focus on such borrowers.
Image courtesy: Elevar Equity