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'MSME Sector Contributes About 29% In GDP' Pallavi Shrivastava, Co-Founder, Progcap

The Indian SME sector has over 15 million retailers routing over $900 billion in sale, only 10 % of retailers from the entire ecosystem falls in the category of organized sector.


Tell us About Progcap- company and how it started and how was the journey so far?

Progcap is revolutionising the way financial access is delivered to underserved segments of the Indian retail economy, through specialized financing and technology products that empower small and medium businesses (SMBs) to progress without obstacles. Working at the intersection of software and financial services, Progcap aims to be the first full stack retailer focused digital bank that digitizes, automates and eases capital movement across the supply chain to SMBs that have remained excluded from the formal financial ecosystem.

India has over 15 million retailers routing over ~$1 trillion in sale. This customer segment is an important growth driver for the overall economy but over 90% of these retailers do not have access to right kind of capital to grow their businesses because they do not have the right kind of data, and information that a traditional financial institution would require to underwrite them. Moreover, reaching these traders across the breath of India is expensive.

We started with a basic idea of addressing the financing gap prevailing in our country for the last mile retailer segment. Soon we realized that microfinancing in India needed a more formalized method of working and would require structuring a different kind of product in order to reach untapped markets in the country. We were aware that existing financial products and the traditional banking approach will not be able to service the requirements of these customers and there will be a need for structured financing products that will accelerate the growth of underserved retail businesses.

We launched our first pilot project in Maharashtra wherein we met a diverse set of traders across many industries. The product, the technology, and some key elements of our business model took shape following the experience post traveling in Maharashtra.

Today, the company's platform is tapped by over 50 + corporates, 450k + retailers and disbursals of over INR 2000 cr of loans on the back of its unique supply chain-driven business model and its award-winning risk scoring engine across pan-India.

Where the industry of last-mile financing does to SME’s stands for?

The Indian SME sector has over 15 million retailers routing over $900 billion in sale, only 10 % of retailers from the entire ecosystem falls in the category of organized sector. However, the 90% of small retailers which are over 15 million are unplugged from formal sector financing. The financial gap for last mile channel is around UDS ~60 bn. Progcap aims at addressing this gap by plugging its solutions and serving the financial needs of these retailers through its industry-first, retailer financing platform, with strong growth and outstanding portfolio quality.

How flexible, collateral-free credit helps in scaling economic opportunities for SME’s and MSME’s

Progcap has been aiming to become the go-to banking and financial services provider retailers. Our Last-Mile Retailer Finance facility focuses on last-mile merchants/ retailers/shopkeepers by leveraging an ecosystem-based approach to identify, approve and monitor loans. Our lending platform has been risk modeling these businesses using non-traditional ecosystem data by creating credit scores for customers that are currently left out by the traditional financial institutions. We are offering them a range of technology products, and also trying to address this huge untapped demand by not only being the credit provider, but rather acting as an end-to-end solution provider for their overall banking and financial services needs.

How Digital financing platforms aiming to reach unbanked and remote populations in developing countries leaving no one behind for credit access

The Micro Small and Medium Enterprises sector remain undoubtedly one of the major contributors to socio-economic development in India. According to IBEF, the Indian MSMEs sector contributes about 29% towards the GDP through its national and international trade. However, some of these small businesses are yet to unlock their full potential due to a lack of credit access.

Progcap has been truly working along the lines of an ‘Atmanirbhar Bharat’ by empowering the core pillar of India’s economy - the micro-enterprises. The platform plugs the credit gap via a mix of technology, including open banking, and supply chain evaluation for credit assessment. Overall, it provides capital and technology solutions to increase the profitability of its customers, manage their cash flows, and help them advance towards a higher growth trajectory. Looking at the significant slice of this overall opportunity, we identify the customers who currently don't have access to any kind of banking and financial services, such as the last mile retailer segment. There are over 15 million small retailers and shopkeepers in India, routing over a trillion dollars in sale that are currently underserved or don't have access to financial services because they don't have data, collateral or documentation that a traditional financial institution would look for while lending to them. Many of them don't even have any kind of formal credit history. Progcap is addressing this very market by providing these customers access to short term, revolving credit and thereby plugging them into the formal financing ecosystem.

How customized financing solutions is the way for small businesses

Most of the customers that we deal with don't have the kind of paperwork, documents, financials etc., which a traditional bank would require for sanctioning loans. Moreover, they don’t have collaterals to give, and very often, they don't even have an existing credit-footprint, as they might be new to credit. So understanding their risk profile through alternative sources of data is important. The kind of data we are bringing in is very similar to what a credit scoring company would look at to assess the credit worthiness of a business. In addition to this, there is a massive need for innovation to be able to really solve the credit and financing needs of last mile retailers. We need to look at them holistically as part of their supply chains. This requires innovation, out of box thinking and solutioning this for every supply chain at scale.

Progcap’s unique product developed in-house and how it’s different from its competitor

Almost the entire technology that we currently run has been built in-house, as we consciously decided to build internal capacities from the beginning. This took us nearly 4-6 months to develop and perfect. Then it was all about building the right partnerships and scaling up basis traction. Each leg has its lead time but things started scaling pretty fast once we got the ball rolling. But what sets us apart from the other competitors in the market is the very fact that while we are financing the end retailer, we are also solving for the liquidity challenge in the supply chains of the Brands we work with. Therefore, we involve the entire ecosystem, for our business, that is a must. We are embedded deep with our corporate partners and their day-to-day business; we are relevant to their operations. We don’t treat ourselves as a financing Company but as an extended arm of the Corporate ecosystem. Building that mindset and delivering that at scale is what we feel sets us apart.

Recent fundraise and future plans for Progcap

Progcap has raised USD 25 million equity capital as part of its Series B investment round led by Tiger Global and existing investor, Sequoia Capital India.

The company will deploy these funds to enhance its services and expand the brand's presence across existing geographies. We will also use the capital to scale up the team, strengthen the technology differentiation and diversify into new product offerings to fortify our vision of building a full stack digital platform for last mile retailers. Our broader mission is to be an end to end service provider for all of retailer transactions. You will see us deeply present in many more industries and an essential part of the way shopkeepers do business in the near future.

What do companies mean when they call their brand customer-centric?

Customer-centric organizations take steps to understand the customer and act on that understanding by creating a culture that empowers employees to make the best decisions for both the customer and the company in parallel. They take into account how each business decision, process change, and customer touchpoint affect the experience.

All in all, customer-centricity is as much a strategy as a culture. It has to be ingrained in an organization in order to be recognized by the final decision maker: the customer. Successful organizations realize higher retention rates, more referrals, price premiums, and ultimately greater revenue.

Our business model is centered around our customers/ retailers – they are what drives our innovation and opportunities for product development in order for us to be disruptive. Although we offer ‘out of the box’ solutions, our software systems are tailored for each of them based on their needs.

In addition, our customer-centric culture extends to the digital realm. We recognise opportunities to connect with them by offering helpful information over our mobile app. Tapping into the customer at every given opportunity is pivotal to creating and sustaining growth and increasing our business advantage amongst the competition.

What is the future of digital finance platforms in Indian landscape?

Digital lending is leading the FinTech revolution. Though still in the nascent stage, it has managed to gain a strong foothold in India. The funding received by digital lending startups over the last few years indicates its immense potential. Digital lending is complex as well as constantly shifting, which makes strict categorization difficult. However, innovators continue to test, refine, and develop their business models based on customers’ needs and market experience.

In India, the transaction value of digital lending (crowd funding, business and marketplace lending, and consumer lending) is estimated to increase at a CAGR of 2.8% from approximately USD 118.4 billion in 2019 to USD 132.4 billion in 2023.