After CapitalFloat, now Aye Finance bags funding to provide loans to startups in India

Though startups in India raised nearly US$5 billion from venture capital funds and angel investors last year, a large number of young companies still find it tough to access capital, especially if they don’t want to share equity with VCs. Banks tie them up in red tape, informal moneylenders demand too much for too little, and microfinance companies have far too little to offer these entrepreneurs. Indian lender Aye Finance, which aims to mitigate this problem, has just bagged US$1 million in funding from SAIF Partners and Accion.

This is the second such investment by SAIF Partners. Just last week, CapitalFloat, a startup which has broader parameters than traditional banks to evaluate the financial health of SMEs and provide working capital, raised US$13 million in series A funding from SAIF Partners and Sequoia Capital. CapitalFloat had raised US$2 million from Aspada and US$1 million from SAIF Partners last year. Both Aspada and SAIF upped their stakes in the company with the latest investment.

Founded by veteran bankers, Sanjay Sharma and Vikram Jetley, six-month-old Aye Finance has financed over 300 micro businesses in diverse industries, including textiles, auto components, and even leather products. It has four branches in north India.

“Our use of new-age mobile and cloud computing lowers the delivery cost and our understanding of industry segments continue to attract a rapidly growing and loyal customer base,” says Sanjay Sharma, adding that organized micro-businesses are the fastest growing industrial segment in India. According to a report by Intellecap and the International Finance Corporation, the debt gap for MSMEs in India is estimated to be US$198 billion, and is increasing at 11 percent per year.

India has a huge micro, small, and medium-sized business (MSMB) market base, which at 47 million is second only to China’s 50 million. “Too small for commercial finance and too large for traditional microfinance, these entrepreneurs must make do without the working capital they need to expand their businesses, buy bulk materials, or hire new employees. Aye Finance will address that “missing middle,” providing borrowers with the capital that all businesses need, no matter their size,” says Accion CEO Michael Schlein in an announcement on the funding.

Accion made its investment in Aye Finance through Venture Lab, a US$10 million initiative to provide seed capital and management support to innovative startups expanding financial access to the poor and underserved.

See: Capital Float gets $13M from SAIF, Sequoia to give startups easier access to loans