Launched by bankers, this fintech startup has disbursed Rs 1,500 Cr in loans to SMEs and retailers

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When Pallavi Shrivastava was working with the World Bank and the International Finance Corporation, she realized that the retail segment was completely lacking in access to credit, especially working capital.

“I was fascinated by the concepts of microfinance and patient capital that used the power of innovative financing structures to be a force for good, and how well-structured financing products can propel the growth of individuals. and underserved businesses ”, explains Pallavi Your story.

Pallavi says there are over 15 million retailers in India and the majority of them face the same challenges in accessing credit. This got her to think about how to close this huge gap.

Meanwhile, Himanshu Chandra, a banker, headed Standard Chartered Bank’s supply chain finance portfolio. The duo decided to solve the problem with Progcap.

Pallavi and Himanshu

Funding and figures

The duo realized that existing financial products and the traditional banking approach would not be able to meet the needs of these clients.

The duo decided to launch Progcap in 2017, in Mumbai, to formalize and digitize access to credit in this segment. The startup aims to be a full-stack digital bank focused on retailers.

“We do this by partnering with brands whose retailer sells the products and, through them, integrating customers,” Pallavi explains.

The team has now raised a $ 25 million Series B financing led by Tiger Global and Sequoia Capital. The funding will be used to improve its services and expand the brand’s presence in existing geographies.

The company will also use the capital to grow the team, strengthen technological differentiation and diversify into new product offerings to bolster its vision of creating a complete digital platform for last mile retailers.

Since its inception in 2017, Progcap has onboarded over 50 companies, 300,000 retailers on the platform and disbursed over 1,500 crore in loans through its unique supply chain driven business model and award-winning rating engine. risks.

Scott Shleifer, Partner, Tiger Global, said: “We are thrilled to partner with the Progcap team that helps small and medium businesses access financing. We believe Progcap has an exciting road ahead as it continues to innovate in this underserved market. “

The startup previously raised $ 9 million in Series A funding.

“Progcap has built a unique product to meet the working capital needs of small Indian retailers who serve a large portion of India’s $ 800 billion retail market. As supply chains in India are formalized with GST, the company will play an important role in meeting the financial needs of these retailers.

“Since Sequoia Capital India’s Series A investment, Progcap has grown the business with outstanding credit quality and high capital efficiency, the team is delighted to strengthen the partnership with this financing,” said Ashish Agrawal, Director, Sequoia India.

The field visit

Pallavi says the idea really crystallized during a field trip with retailers for the pilot. After meeting a diverse set of traders across many industries, the product, technology and some key elements of the business model took shape as a result of the experience of traveling through Maharashtra.

Today, Progcap is a team of more than 150 people. The startup’s core platform runs on last mile technology, which connects to systems, accesses relevant data to underwrite borrowers, and creates exits.

From integration to disbursement and collections, the journey is fully digital using internal systems. Most of the technologies are proprietary.

“It helps us work with and serve customers far from our operations. The product takes into account the ecosystem’s current terms of trade, and we integrate into the ecosystem to help fuel business. Our business is managed and monitored 100% digitally, ”says Pallavi.

She explains that by 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 facilitates the movement of capital throughout the supply chain to SMEs that have remained excluded from the formal financial ecosystem.

Speaking about the market and its challenges, Pallavi says India has over 15 million retailers, channeling over $ 800 billion in sales.

She adds that although this customer segment is an important growth engine for the global economy, over 90% of retailers do not have access to the right kind of capital to grow their businesses because they don’t have the right kind of capital. data and information. that a traditional financial institution would require to subscribe to them. In addition, reaching these traders all over India is expensive.

Challenges

However, that was not the only challenge; building the product was also a task.

Pallavi says they had to learn how to structure the right product that matches the demands of the retail segment. The type of financial products that retailers have used to finance their purchases so far are completely out of sync with their cash conversion cycles, so when Progcap came along, they found there was massive demand.

“Second, we had to build protections and risk structures around a segment that used to work informally. Finally, create early traction and integrate the first set of brands … but the response we got has been encouraging ”, Pallavi said.

She adds that given the informal nature of these companies, it was difficult to access the data to subscribe, but they built the right technology, entirely in-house, to get started and also created a business model that made it easy to access. to retailers.

The tech game here is huge, from data access and subscription to service delivery and dashboards.

“In credit companies, it is also about the quality of the assets, the underwriting and the cost of acquisition. For first-time entrepreneurs it takes a bit longer to convince investors, but since we come from this industry, it was easier to get commercial traction. COVID-19 and the lockdown that followed put our model to the test and we are justified by the virtually NULL depreciation. We are now on the right track to grow significantly from here, ”said Pallavi.

The market

The MSME sector is growing at a rapid pace and its contribution to India’s GDP continues to soar. According to the Confederation of Indian Industry (CII), MSMEs contribute 6.11% of manufacturing GDP, 24.63% of service activity GDP and 33.4% of Indian manufacturing output. Despite the huge contribution, the area is considered laid back.

Others in the loan segment include LendingKart, NeoGrowth, Vivriti Capital, Shubh Loans, Happy Loans, KhataBook, IndiFi, and OkCredit.

“We work with the Indian branches of many Fortune 500 companies. The combined revenue of these entities in India is $ 60 billion. We have disbursed over $ 100 million so far and our growth is close to 25 percent MoM. We are now 8X the volumes we were doing just before the lockdown and we expect to be 5X our current size by December 2021, ”Pallavi said.

Future plans

She adds that the next three to five years for the company will be spent growing at breakneck speed.

“By helping retailers buy, store, sell and digitize, Progcap is slowly becoming a critical driver of their growth and profitability. The market size is expected to exceed $ 1.5 trillion by March 2026, and Progcap is well positioned to be a leading player in supporting the growth of a small retailer, ”said Pallavi.

She adds that their larger mission is to be an end-to-end service provider for all retailer transactions. Progcap aims to impact more than five million businesses by the end of 2023.


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