AU Small Finance Bank (“AU”), an existing client of GuarantCo, has recently converted into a small finance bank having received Reserve Bank of India approval to convert in December 2016. The conversion to a bank is supported by the additional facility extended by FMO/GTCo, as the funds will be channelled to the self-employed for acquiring commercial vehicles to generate income and to the micro, small and medium enterprises “MSME” and small and medium enterprises “SME” sector for business expansion, working capital and equipment purchase to earn their livelihood. AU has seen its core commercial transport asset financing portfolio grow profitably without compromising asset quality and as at the end of 2016 AU had INR 97.5 million total assets under management on its balance sheet.
AU provides financing predominantly to low and lower middle income individuals and businesses that have limited or no access to formal banking and finance channels. AU operates in vehicle finance; MSME loans and SME loans. Over 50% AU’s portfolio remains in Rajasthan, one of India’s poorest states.
These small-scale entrepreneurs play an important role in the provision of transportation services in rural and semi urban India, but are unable to get financing from banks due to their lack of credit history and small loan sizes. Such entrepreneurs are usually lowly paid employees working in the transportation sector, and AU’s financing provides them an opportunity for social and economic mobility by owning their own vehicles or other productive assets.
Who is our client
Founded in 1996 by Mr. Sanjay Agarwal (Chartered Accountant & a first generation entrepreneur), AuF is a prominent, retail focused non-banking finance company (NBFC) now recipient of final approval from the Reserve Bank of India (RBI) to set up a small finance bank (SFB) on December 20, 2016 and is the only NBFC categorized as an asset finance company to obtain such license.
Au is primarily serving low and middle income individuals and businesses that have limited or no access to formal banking and finance channels. Au operates in vehicle finance; micro, small and medium enterprises (MSMEs) loans; and small and medium enterprises (SMEs) loans.
Going forward at bank platform also, they intend to expand and strengthen their business model to offer more diverse suite of banking products and services by leveraging their asset-based lending strengths, existing customer base and cost efficient, technology driven hub-and-spoke branch operating model to create a successful new SFB. They believe that transitioning to an SFB offers them a significant growth potential and aims to be a retail focused, preferred and trusted SFB offering integrated and tailored solutions to its customers towards achieving aim of financial inclusion of Indian Government.
What is the funding objective
The investment from FMO (Guarntco) will be used to expand Au’s Commercial Vehicle Finance business & SME Loans segment. The funds will be channelled through Au to the self-employed for acquiring commercial vehicles (out of which 60% contributing towards First time user / First time buyer) to generate income and to the (M)SME sector for business expansion, working capital and equipment purchase also to earn their livelihood with vehicles and SME businesses.
Why do we fund this project?
Aside from job creation & earning resources for SMEs of low income strata in rural & semi urban markets, 30% portion of this facility qualifies for green financing since 30% portion of funding shall be earmarked for financing of CNG vehicles. Which will further improves energy efficiency of the local transport sector as well as air quality.