September, 20, 2017
Financing the ‘Missing Middle’
19 Jan
Posted by Madhumita Prabhakar

Vistaar Financial Services is striving to create financial inclusion for the ‘missing middle’, typically family businesses run by entrepreneurs who deal with cash. So far, it has disbursed Rs. 1,100 crore in loans to over a lakh customers through 200 centres across India.

When Brahmanand Hedge and Ramakrishna Nishtala founded Vistaar Financial Services in 2010, their goal was not to find a spot in India’s already cluttered fintech space, but to strive towards financial inclusion, particularly among businesses that operated in the MSME (Micro, Small and Medium Enterprises segment. Think Kirana store, a power loom or a brick kiln.

In numbers, Vistaar was looking at 36 million enterprises with a total unmet need of Rs. 2.9 trillion. Of course, while banks and NBFCs tried to address some of the sector’s credit demand, primarily of the medium and large businesses and of the productive poor (served by microfinance institutions) Vistaar envisioned a majority of the total MSMEs segment, the self-help groups or the missing middle, as its addressable market; 76 per cent of the market share, to be precise. “We were looking at family businesses, run by entrepreneurs who deal with cash. And, a key challenge we were faced with is, there is no documentary evidence of their revenue or cash flows and they have high loan requirements,” explains Nishtala.

“One of the biggest challenges we faced was in identifying the right team, especially because we served a segment that hadn’t been addressed before. To tackle this, we first brought together a core senior management team, whose ideas we aligned with the company’s vision. Later, we on-boarded and trained next level of talent to work on ground.”

Assessing Credit Worthiness

So, how did they arrive at a methodology to evaluate the borrower’s credit worthiness? As a first step, the team held an in-depth study of eight different sectors, such as hotels & bakery, dairy and allied businesses, home-based enterprises, Kirana stores and more, to arrive at a credit methodology. Customised to each sector, it arrived at a mechanism wherein it first assesses the borrower’s income by evaluating non-traditional documents for income, ability, intention, business sustainability and credit behaviour. Then, it determines the business’ credibility through reference checks in the supply chain, neighbourhood and other sources, and finally, it initiates a loan against collateral.

While refinement of product and credit methodology is an ongoing process at the company, it currently offers four products on the platform; Small Business Hypothecation Loan (SBHL) of up to Rs. 95,000 with a tenor of two years, Small Business Mortgage Loan (SBML) of up to Rs. 25 lakh with a tenor of five years, bill discounting with loan up to Rs. 25 lakh and a 90-day tenor and, Equipment Finance with a loan up to Rs. 25 lakh over a tenor of four years. “While bill discounting is targeted at manufacturers with an annual turnover of Rs. 1 crore, equipment finance is designed to enable individuals, partnership or proprietorship businesses purchase machinery,” shares Hegde.

Financing Its Growth

With loan disbursements also came a need for Vistaar to begin seeking external funding to fuel its venture. It raised its first round of US $3 million (before 2011) from Sama Capital and Elevar Equity, and followed it up with a US $1.5 million round in 2011. In 2012 again, it raised US $8 million from Lok Capital and Omidyar Network. “From here on, we wanted to explore commercial funds from large investors. That’s when Westbridge Capital came into light,” adds Nishtala. This was in May 2014, when Vistaar raised a Series C of US $27.37 million from Westbridge Capital, soon following it up with an internal round of US $37.58 million, led by existing investor Westbridge Capital and earlier investors, Omidyar and Elevar Equity.

During the last funding round, its co-founder, Hegde had pointed out that the money would be channelized towards increasing its portfolio to Rs. 2,500 crore in the next three years, along with an expansion (of its centres) from 150 at that time to 275 in two years. “While this continues to remain our focus, we also plan to double the number of customers we serve from the current 1,30,000 across MSME segments,” adds Hegde.

While being an NBFC institution serving the ‘missing middle’ stands as a key positioning for Vistaar, it counts its technology and digital backend to be its key strength and game-changer. “All our processes are paperless, digitised and automated. Take for example, our in-house IT platform; it can process 7,000+ transactions in a month and enable electronic disbursement of loans via banks, not only bringing agility into the process but also minimising risk for customers,” explains Hegde.

With psychometric tests (to evaluate a borrower) and deeper adoption of data and analytics being the key focus for Vistaar going forward, its co-founders are confident that anyone wanting to replicate Vistaar’s model in the market will take at least three to four years to stand neck-to-neck. “We want to be a leader in this segment and specialise specifically in the MSME financial space,” concludes Hegde on an ending note.


Founders: Brahmanand Hedge and Ramakrishna Nishtala

Year: 2010

Investors: Sama Capital, Elevar Equity, Lok Capital, Omidyar Network, Westbridge Capital

Lenders: IndusInd Bank, SIDBI, Federal Bank, RBL Bank, Hinduja Leyland Finance, IFMR Capital and Sundaram Finance, to name a few

Impact: Served 1,30,000 customers and crossed loan portfolio of Rs. 1,100 crore

Presence: 200 centres

No comments for the article
Editor's Pick
  • The Snapdeal Pivot

    In January 2013, Snapdeal had a mere US $100,000 in the bank, a small chunk left after it had burned through almost all of the US $57 million it had raised since September 2009. Th...

  • Transformation by design

    Polaris’ Arun Jain has engineered a unique strategy at the mid-sized financial technology company, incubating a robust products company from within a running services entity. He ...

  • In coffee, we trust

    Tata Starbucks is the coming together of two iconic brands. 34-year-old Avani Saglani Davda, the company’s CEO, explains to us why her game plan for Starbucks in India is to “g...

  • Where there’s traction, Money will follow

    Deepinder Goyal, founder and CEO, Zomato, shares a great working relationship with investor Sanjeev Bikhchandani of Info Edge for one simple reason: Bikhchandani is more entreprene...

  • Playing 20 Questions with Mittu Chandilya

    The AirAsia India boss discusses his interview experience with Tony Fernandes, his firm-and-fair management style and why it is crucial to be a serial innovator to win in the aviat...

  • Where ownership and management are different

    Dr. Ranjan Pai, Managing Director, Manipal Education and Medical Group, has led the professionalisation of the Group by consciously empowering his senior managers, seeding several ...

  • Building a Happy Company

    Ashok Soota-led Happiest Minds Technologies has woven happiness into its business process. Find out how you can do it too....

  • Narayana Health’s ten-year plan

    Narayana Health’s Dr. Devi Prasad Shetty wants to rewrite India’s healthcare story. His personal mantra: it is pointless talking about all the advancements in healthcare if peo...

  • Creative Dialogue on Scaling Up

    Cognizant’s Lakshmi Narayanan indulges in a creative, freewheeling chat with L. Kannan and Vijay Babu of Vortex Engineering, a solar-ATM manufacturer....

  • "Businesses don’t go anywhere, people do"

    Mindtree’s Subroto Bagchi urges entrepreneurs to think of their journey as a process of continuously creating infrastructure – physical, intellectual and emotional. He specific...