‘We see negative market sentiment as an invitation to do more, not less’

Aavishkaar Group, one of the world’s largest impact investors, recently raised ₹260 crore from Dutch Entrepreneurial Bank to push its long-term growth plans. In an interview with Fortune India, Aavishkaar Group founder and chairman Vineet Rai discusses the group’s plans to expand its lending and tech platforms in a challenging economic environment. Rai says the company has returned 3.7x to investors so far and plans to grow its assets under management (AUM) sevenfold to $7 billion by 2025. Edited excerpts:

Dutch Entrepreneurial Bank invested ₹260 crore in Aavishkaar Group. How will the funds be deployed?

All capital is used to push our long-term plans forward. Most important is to provide adequate capitalisation for our lending and technology vehicles. A significant part of the capital would go in doing that. Some part would be used in replicating our India work in East Africa and Southeast Asia. We would use some capital to strengthen our technology and human resources.

Can you tell us a bit more about the growth plans for your microfinance institution (MFI) Arohan and venture debt company IntelleGrow?

We have two key lending vehicles—Arohan and IntelleGrow. Arohan is largely focussed on microfinance; and over the years we have worked on becoming a leading lender with significant capacity to provide our women customers with paperless and cashless credit along with other choices, including taking a digital e-bazaar to them. IntelleGrow has been pioneering the idea of cash flow-based lending to the SME [small and medium-sized enterprises] space. We have understood that asset-backed lending is not the best option for MSMEs [micro, small, and medium enterprises].  We also understand that risk-based pricing and cash flow-based assessment, and customised products are critical for having a strong portfolio. IntelleGrow is expecting to reach $100 million or ₹700 crore outstanding loans by the end of the year.

What is the size and quality of Arohan’s loan book? Are margins under pressure?

Arohan is one of the top-performing MFIs and has AUM of close to ₹5,000 crore ($700 million). We measure our performance in terms of how we are taking choices to people who are moving into the economic mainstream. We have spent the past seven years only focussing on low-income states as we believe they need most attention; and we exclusively lend to women. Our learning is that if you focus on building relationships and serving the customer’s needs, you build an institution that is significantly shielded from the vagaries of the external environment. Arohan is a net-zero non-performing asset company which has, during the most trying time for non-banking finance companies (NBFCs), reduced its borrowing cost by 150 basis points (bps) and improved its ROE (return on equity). All this is possible only because of the support of 2.1 million women customers and 6,000 employees.

How does Tribe stand out in the cluttered fintech (financial technology) space? Which segment does it mainly cater to?

Tribe, our digital technology platform, allows connectivity for lenders who cannot do rapid loan distribution using a technology platform. We are extending that idea to reach markets that does not need any ground footprint.  Tribe is looking to build a tech platform that can help a farmer seeking a ₹15,000 loan digitally as also a micro-enterprise seeking a ₹5 lakh loan. We are trying to scale this platform so that it can do so without having a field footprint.

You have mentioned that you want to build an impact investing ecosystem to help entrepreneurs. What kind of ventures does IntelleGrow typically support?

Intellecap’s role is to build an ecosystem that would allow entrepreneurs, who are solving complex social problems like that of agriculture, financial inclusion for the poor, waste, water sanitation, logistics, last-mile connectivity, capital needs, mentorship, and a space they can call their own.

We also want to celebrate entrepreneurship as an idea, bring in people who want to support entrepreneurs who bring about real change in human life, we want to build an ecosystem that would help us deliver sustainable development goals and help us all reimagine the world we live in. Intellecap helps young entrepreneurs gain exposure and it works with large companies to help them understand complex social issues and how to engage with the low-income society. It also helps investors connect with these entrepreneurs—both at the early and growth stage.

Small lenders are going through a bit of turmoil right now. The economy is foundering, liquidity is a concern, and business outlook is bleak. What gives you the confidence to invest in your lending platforms in the current backdrop?

Aavishkaar Group exists to bridge the opportunity gap for those who are at the bottom of the economic pyramid.  This statement would tell you that we are thinking very long term and that we are not easily scared.  We have been around for 18 years and we have faced local shocks and global shocks, and we understand that these dark clouds are part and parcel of life. We see negative sentiment in the market as an invitation to do more and not less.

How much has Aavishkaar Capital, your equity investment arm, returned to investors so far?

We have returned ₹467 crore to our investors till now at an MOIC (multiple on invested capital) of 3.7X and we are expecting to return another ₹750 crore over the next six months.  This includes our failures and write-offs to date.

The group’s AUM is pegged at $1 billion; how much of this is invested in India?

Nearly 90% of Aavishkaar Group’s assets are in India but we expect 25% of our assets would be outside India by 2025, as we aim to reach an AUM of $7 billion or ₹50,000 crore.