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‘There is a huge spectrum of growth for SME lending in the healthcare sector’

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We aim to blend the robustness of traditional financial institutions with the data-driven approach of modern fintech companies to provide unique funding solutions for healthcare SMEs like diagnostic chains, pharmacy chains, hospitals, nursing homes, etc., informs Shachindra Nath, Executive Chairman, U GRO Capital to Viveka Roychowdhury

After you took over Chokhani Securities in July 2018 for Rs 40 core, you re-branded it to U GRO Capital. As a founding team member and former CEO of Religare Enterprises, why did you decide to now focus on SME financing? What will be the funding/lending strategy in terms of re-payment timeline, terms etc?

Well, during my stint at Religare as group CEO, I gained quite in-depth exposure and understanding on SME lending. The SME credit opportunity is large and very underpenetrated, as traditional banks don’t prefer to lend to the segment. That’s precisely the reason why the SME sector’s contribution to the country’s GDP still stands at 30 per cent, whereas, in more developed economies, the share typically hovers around 45 per cent. The sector is still untapped and underpenetrated from the lending point of view because of its diversified nature. For instance, the business cycle and the cash flow cycle differ from automobile component manufacturers to hospitals to educational institutions. The one-size-fits-all approach doesn’t work here. Because of the ballooning credit gap, 70 per cent of the capital requirement in the SME sector is fulfilled through informal channels. As SMEs are regarded as the key growth driver of the Indian growth story, we firmly believe that the scenario has to change. And the key to cater to the sector effectively is to develop an in-depth understanding of various business models. Hence, we have adopted a sector-focussed lending strategy for the SMEs.

We also offer customised loan products. The loan tenure could be anywhere between three months (in case of supply chain finance) to 8-10 years (for instance, secured business loans with property as a collateral).

What is the total quantum of funds available for lending? Who are the major PE and other partners?

We have raised over Rs 950 crore of capital from a diverse source of investors including large private equity funds like PAG, Sameena Capital, NewQuest, ADV, public market funds like IndGrowth and Abakkus Capital, insurance firms like PNB MetLife and HNIs/family offices.

Why was healthcare chosen as one of the eight focus SME sectors for lending?

We worked with CRISIL for over a period of 18 months to analyse macro- and micro-economic factors and their impact on different sectors. Healthcare emerged as a sector with a large credit demand.

Overall institutional debt (including bank and non-bank loans) for the healthcare industry is projected to touch Rs 3 trillion-mark by FY 2021-22 at a CAGR of 15 per cent from an estimated Rs 1.5 trillion in FY 2016-17.

In addition, demand for healthcare services focussed on lifestyle-related diseases (non-communicable diseases such as cardiovascular diseases, oncology, diabetes, etc) is all set to rise. The healthcare delivery market in India will cross Rs 8 trillion by FY2021. There is a huge spectrum of growth for SME lending in the healthcare sector, thanks to this.

In fact, healthcare has emerged as one of the fastest growing sectors in India due to the presence of multiple players such as diagnostic chains, pharmacy chains, hospitals, nursing homes, etc. Nevertheless, there is a demand-supply gap, as the sector is not adequately serviced by the banks and other traditional lending institutions. We believe that in order to improve the overall healthcare delivery in India, this bridge must be gapped.

Who would be your potential clients?

We are mainly focussing on small SME players like nursing homes, diagnostic centres, pharmacy chains, small hospitals, etc.

What are the funding bottlenecks that they face when approaching the traditional sources of loans?

The conventional lending approach of the traditional sources is the biggest funding bottleneck for the SMEs. The archetypal P&L-based lending approach doesn’t work for entities like a local diagnostic chain as the revenues of such business entities are not always documented. In such a case, the process of assessing creditworthiness has to be based on parameters such as footfalls at the branches of that diagnostics centre, experience and credentials of doctors attached to that centre, etc. Moreover, one needs to develop critical sub-sector expertise to understand the business model inside-out. Because, you can’t apply uniform parameters to judge the creditworthiness of an IVF clinic, dentist’s clinic or a small doctor’s clinic, as footfall-count will always be the lowest at an IVF centre compared to others. But, every footfall at an IVF centre generates more revenue than a footfall at a simple doctor’s clinic.

Another key aspect is that of underwriting. Loan against property concept will not find any taker in this sector, as most of the business runs on rented property. So, one has to look at options like loan against medical equipment which is quite expensive in nature — dentist’s chairs, eye-testing equipment, etc. The traditional banks or NBFCs are not in a position to underwrite because of their rigid approach. We score over traditional lenders’ banking on our incisive understanding on various business models of the players in the healthcare sector. Even the margin of a pharmacy changes when it gets affiliated to a doctor or a hospital. Experience of doctors also impacts the revenue of a hospital significantly. Based on those insights, we have developed customised scorecards for each of those players which help us to underwrite properly. In addition to it, we have deep sector specialisation to understand, reach and serve the customers better.

How does U GRO Capital go about prospecting and servicing this segment?

We have adopted a few approaches. We collaborate with online healthcare service aggregators to reach out to doctors, diagnostic centres, clinics, etc. We assess their demand based on the clinks, appointments, etc. We also tie up with hospitals, diagnostic/pharmacy chains to explore lending opportunities to their supplier ecosystem. The third one is traditional branch-led lending wherein we service the loan-seekers at our branch offices spread across the country.

How many such clients does U GRO Capital service since lending began in January this year?

Being a listed company, we are not in a position to disclose exact numbers.

Could you illustrate the value add of your company with a few examples?

We help entrepreneurs grow and contribute to the development of the overall healthcare service quality. Supported by a team with a strong track record of execution, we aim to blend the robustness of traditional financial institutions with the data-driven approach of modern fintech companies to provide a unique solution to the funding needs of small businesses. We are building a truly new generation lending platform which would leverage digital capabilities across the value chain – customer acquisition, credit underwriting, and post-disbursal monitoring.

We hope to, through our understanding of the sector, provide solutions to entrepreneurs and through them improve the overall healthcare service quality.

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