NBFCs lending to small businesses to see $15bn deal flow by FY33

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MUMBAI: According to a research by Avendus, $15 billion would be invested in NBFCs that provide loans to small enterprises. The deal flow for this segment over the preceding ten years has grown by a factor of ten.
Just 14% of India’s 6.4 crore MSMEs, according to the survey, have access to loans. Their expected overall financial need is $1,955 billion, of which $1,544 billion is debt. The market size is projected to be $819 million, of which only $289 million is satisfied by formal credit, taking into account that slightly more than half of this demand comes from viable enterprises.
“We think that MSMEs are the backbone of our economy and that their expansion is essential for us to reach a GDP of $10 trillion. Anshul Agarwal, MD & co-head of consumer, financial institution and business service group at Avendus, stated that this industry has a significant challenge in the shape of a sizable credit gap, totaling more than $500 billion, of which more than $100 billion exists for the small ticket loan category.

NBFCs are thought to be in a stronger position than banks due to their extensive presence and low-cost branches. Also, they perform better at finding clients and determining client repayment capacity. NBFCs are prepared to comprehend and assess an unregulated sector and have their own collection team, in contrast to banks, which favour safe clientele. Also, they excel at televerification, technology-related cash flow recognition, and document retrieval.

“High-quality, specialised NBFCs with agility and nimbleness are addressing this lending shortage. We predict that this section will enter a beneficial cycle. Operating expenses will decrease as the market ages and balance sheets get stronger, according to Agarwal, as the cost of financing rationalises.

We also think that this market is beginning a virtuous cycle, and lenders in this market will be able to produce a 20% return on equity over the long term.