In India, micro, small, and medium-sized enterprises (MSMEs) face a $230 billion collective shortfall in accessing the financing they require to grow their businesses. Firms of this size generally lack sufficient documentation and credit history to qualify for traditional bank loans. In 2014, Aye Finance, a small Delhi-based non-banking financial company looking to help close this credit gap, caught Accion’s eye.
Aye uses a cluster-based approach to MSME lending, meaning it selects manufacturing and service clusters within a given location, and prioritizes loans to businesses in those segments. For example, depending on what industries in a city or town offer the greatest potential as customers, in one place it might work with woodworkers, shoemakers, textile producers, and carpet weavers, and in another auto parts manufacturers and restaurants. This strategy allows Aye to build a brand identity among the MSMEs it targets. Additionally, since Aye is familiar with the typical financials of a business in that segment and the reputation a prospective borrower has with its peers and partners, it is able to more quickly assess an applicant’s creditworthiness.