Venture capital firm A91 Partners has invested about $20 million in small-business lender Aye Finance through a secondary sale of shares, acquiring the stake of Accion, two people aware of the matter said.
A91 and Aye Finance separately confirmed the investment to Mint, but did not comment on the deal size.
Started by Sanjay Sharma in 2014, Aye Finance typically infuses ₹1-2 lakh into businesses with an annual turnover of ₹10-30 lakh. It underwrites the risks in these loans with a unique cluster-based model, wherein it evaluates all the people in a particular field, say, automobile workers or textile workers, and correlates behavioural tendencies.
So far, Aye has raised nearly $70 million in primary capital from investors such as SAIF Partners, Falcon Edge Capital, Accion and Capital G. It is preparing for another equity fundraise and is scouting for a banker to run the process, said the people cited above.
As on 31 March 2019, Aye had 104 branches across Uttar Pradesh, Rajasthan, Delhi-NCR, Haryana, Punjab, Uttarakhand, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana and Madhya Pradesh, according to a report from rating agency Icra. It has a loan book of around ₹1,700 crore.
“The teams at Aye have been relentlessly working to bring this ignored sector into the fold of organized lending and we recently reached the milestone figure of two hundred thousand loans disbursed. Accion has been a supportive partner in our transition from a startup to a mid-size organization,” Sharma said.
Accion got a 3x exit from its initial investment, said the people cited above.
A91’s investment was led by partner Kaushik Anand who had also invested in Aye Finance in his previous role as India head for Capital G, the investment arm of search giant Google.
“Companies like Aye are catering to the sub- ₹10 lakh small-business loan market, a sector which has generally not had access to formal credit,” Anand said over the phone.
“This is so, because the operating cost was very high (for a smaller ticket size). Technology has allowed to reduce cost of operations and, although they have branches offline and people physically sourcing loans, the process is fully paperless,” he added.
It has also raised over ₹350 crore in debt over the last few months from Switzerland-based impact investors BlueOrchard and responsAbility AG; and Dutch development bank FMO, among others.
Aye has managed to grow and keep a relative check on defaults, in what has been a testing time for the non-banking financing industry, which has been bogged down by a severe liquidity crunch and has seen a number of high scale defaults, including those by Dewan Housing Finance Corp. Ltd. and Altico Capital.