Rakesh Malhotra started up his first venture Luminous Power Technologies as early as 1988 and later sold it to Schneider Electric in 2011. During this time he realised how difficult it was for distributors to procure Luminous products due to lack of working capital. The serial entrepreneur decided to address this challenge. In 2017, he founded LivFin, a supply chain-focused non-banking finance company (NBFC) and started operations in March 2018.
The Gurugram-based fintech firm provides tech-enabled invoice-based short-term (30-180 days) loans to help micro, small and medium enterprises (MSMEs) in addressing working capital needs. Although LivFin provides loans to distributors and vendors, it reaches out to them through the companies it works with. LivFin calls them 'anchors'. Currently, it has 9 anchors and 300 borrowers. The anchors are from sectors such as energy storage, food and agriculture, consumer electrical and e-commerce.
The start-up's anchor-based approach is its unique selling point. It works with companies that own the brand and they direct the NBFC start-up to suppliers and distributors. Broad parameters such as loan tenure and interest rates are discussed with anchors. LivFin receives the list of distributors from anchors that it analyses separately.
"It's a win-win situation for us, brand owner and their distributors and suppliers," says Rahul Chander, CEO, LivFin, who looks into day-to-day operations of LivFin. "Owners don't have to borrow to be able to lend to suppliers. This improves the quality of their balance sheets. Suppliers get discounts since they are in a position to pay money upfront. As for us, we get clients."
The biggest advantage here is the risk of default is minimal. "Since products have already been bought and there is an underlying invoice, our borrowers can't spend that money elsewhere," Chander explains. LivFin has nil delinquencies so far but they have assumed a default rate of 1-1.25 per cent on total assets under management (AUM) by the end of FY20.
The operating mechanism
LivFin analyses data collected from 'anchors' and accordingly select target clients. "We send them links to our apps and web portal. They upload relevant information such as bank accounts and GST statements on our app or website. Then, we prepare a scorecard and fix a loan limit. "For each distributor, the limit is different; interest rate and tenure are same," says Chander.
Funding and revenues
LivFin has raised Rs 37 crore in equity and Rs 100 crore in debt from nine different NBFCs and banks. Chander says the company will raise another Rs 200 crore in the next 12-18 months with Rs 40 crore expected within next two months.
The NBFC start-up disbursed over Rs 550 crore in FY 19, earning revenues of Rs 7.9 crore. The company aims to collect Rs 380 crore AUM by FY20-end.