Disbursement an expense, collection is revenue: Fintech founders decode realities of SME lending

(L-R) Anup Agarwal Co-Founder and CEO, Mintifi; Sayali Karanjkar, Chief Business Officer, Elasticrun; Kaushik Anand, Partner, A 91 Partners; Utpal Isser Co-Founder, MD & CEO, SarvaGram; and Deepak Jain, Co-Founder, FlexiLoans

Lending may seem like a three-step, straightforward transaction - disburse the money, collect the repayment, and repeat the loan. But Utpal Isser, co-founder, managing director and chief executive of SarvaGram, a rural-focused SME lender, puts it rather blutly: “Lending is not about giving money. It’s about ensuring repayment.”

This observation sets the stage for a deep dive into the complexities of SME lending - a sector that’s both a critical driver of economic growth as well as a minefield of operational challenges.

Seasoned in the trade for decades, Isser unpacked the hard truth: “Lending is difficult because it’s the business of measuring both the ability and intent of the borrower, which can only be done by getting a 360-degree assessment of whichever unit (SME, personal, vehicle loans, etc.) you are choosing. Individual slivers of data may give you a view, but will not give you a full view. After all, disbursement is an expense, but collection? That’s your revenue,” he said during a panel discussion at the Moneycontrol Fintech Conclave in Mumbai.

Isser’s perspective came came when Kaushik Anand, partner at A91 Ventures, noted that many startups without a clear revenue model often view lending as a quick solution. “When I meet companies without a revenue model and ask how they plan to make money, they often say, ‘lending’. Why is lending so challenging? Why can’t it just be treated as a feature?” he wondered, paving the way for an insightful discussion.

“Lending isn’t a side gig. It’s the main gig,” Deepak Jain, co-founder of FlexiLoans, a Mumbai-based MSME lender, chimed in, driving home the point that successful lending requires focus, commitment, and a robust operational backbone.

"We were the ones who started and convinced a lot of these ecosystems (non-core fintech firms) that you can monetise your MSME ecosystem through lending. But it’s not just a plug-and-play model—it’s about mastering acquisition, underwriting, collections, and capital management, all at once. It cannot be run as a money-churning side game," he said.

Anup Agarwal, co-founder and chief executive of Mintifi, a Mumbai-based supply chain financing platform, agreed, reiterating the fifth and core pillar - regulations that necessitate a compliance-first mindset. “The most important pillar is regulation. Most people tend to forget that lending is a highly regulated business. If you don’t have the mindset to build a business around following tight guidelines, you may not be able to build a long-term sustainable model,” he pointed out.

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Balancing digital and hybrid approaches to sourcing loans

Moderating the session, Anand steered the conversation toward the differing approaches to sourcing SME loans among fintechs.

Jain outlined how his company leveraged technology to build a digital-only loan acquisition model. “When we started FlexiLoans in 2016, there were no digital-only acquisition models at scale in India. Inspired by global practices, we decided to replicate it here. We partnered with ecosystems like Amazon, Flipkart, and Paytm, using data science and analytics to understand customer personas and acquire them digitally.”

The benefits of this model were clear to Jain. “You don’t need to open branches or worry about branch unit economics. As long as you can underwrite and collect effectively, you can source from anywhere in the country,” he said.

In contrast, Isser highlighted the limitations of a purely digital approach for rural markets and emphasized a more balanced approach integrating digital tools with human expertise to serve rural borrowers effectively. “You can’t be purely digital or purely physical anymore,” he said. “We call ourselves 'driven by data but delivered by humans'.”

For Isser, the choice of the sourcing method hinges on the customer’s segment and behaviour. “We work in deep rural areas, and even here, 60 percent of our customers’ bank accounts are pulled digitally through account aggregators. But the journey isn’t fully digital—some borrowers can complete about 50% of it online. The key is to determine how much digital you can go without compromising on underwriting quality,” he explained.

The panel underscored that loan sourcing isn’t a one-size-fits-all game.

Sayali Karanjkar, chief business officer of ElasticRun, took a strategic view. Recalling her current and past experience as a co-founder at PaySense, she highlighted how tech is used to bridge gaps in underwriting and reduce the cost of servicing. “We use tech to underwrite people you cannot underwrite physically—those with highly variable incomes or thin credit bureau data. Our models identify consumers like them and assess risk accordingly,” she noted.

However, Karanjkar stressed that technology alone isn’t enough. “This is a heavily collections- and risk-oriented business. We started by building a very strong collections team, which was unconventional in fintech at the time. Many asked why we were setting up traditional collections teams, but they taught us what we needed to know. We then productized that knowledge to train our data models and scale while lowering costs,” she shared.

Regulations are non-negotiable

While unsecured lending faces headwinds in the consumer space, the SME lending sector remains robust, the panelists voiced. They agreed that demand from MSMEs continues to be strong, driven by the need for business investments rather than consumption-driven borrowing.

“Clearly, there was some concern when the regulator increased the risk weightage on unsecured lending earlier this year,” acknowledged Agrawal. However, he highlighted an essential point: “What’s crucial is that the regulator has consistently shown strong support for SME lending, especially within the priority sector lending (PSL).”

He further explained that the regulatory changes did not impact SME lending, as the risk weightage increase was explicitly excluded for businesses serving this sector. “The regulation specifically carved out an exception for those focused on SME lending,” Agrawal said. “From our conversations across the ecosystem, we’ve not seen any significant impact from these changes.”

Jain pointed out that FlexiLoans’ portfolio heavily targets these underserved regions, where the vast majority of borrowers come from tier two and tier three towns. “In these areas, we have not seen any slowdown in the demand for MSME loans,” he stated. Unlike consumer loans, which can be used for consumption, Jain highlighted that loans to MSMEs are often for investment in business growth.

As the panel wrapped up, Anand raised the question of a "funding winter", to which Anup confidently countered that solid businesses will always attract capital, regardless of market conditions. While Mintifi recently concluded a $180 million funding round, both FlexiLoans and SarvaGram raised $35 million and $67 million in capital, respectively.

Isser playfully added, “What winter, what summer? When it’s winter in London, it’s summer in Cape Town!”