news - FMO extends outreach in micro and gender finance in India by onboarding Aye Finance

Last month, FMO onboarded Aye Finance (Aye), a non-deposit taking NBFI in India, with a debt transaction of INR 1,250 mln (USD 17.6 mln). FMO’s investment in the Non-Convertible Debentures issued by Aye will allow the company to expand its outreach and provide credit specifically to women-owned microenterprises in India. FMO will also work closely with Aye to expand its services to women entrepreneurs in the country, through a Capacity Development Gender Finance program.

Aye’s mission is to provide innovative financial services to underbanked micro and small businesses dedicated to working capital finance and capacity expansion. Aye selects particular clusters of businesses to finance based on the analysis of macro and microeconomic parameters in specific regions. Aye finances firms with similar characteristics in particular areas, e.g. shoemakers, carpetmakers, wooden furniture producers and leather goods manufacturers. Risk management is based on data management and analytics, e.g. credit habits and seasonal swings in business and industry-specific early warning triggers. With these inputs, Aye creates a synthetic income statement and balance sheet of each customer, which is used for determining credit underwriting criteria and borrowing capacity of the client.

The firms that Aye finances are generally too large to qualify for pure microfinance loans offered by local MFIs but are too small to be financed by the leading banks. Firms of this size usually lack sufficient documentation and credit history to qualify for traditional bank loans and would, therefore, otherwise be locked out of the financial system: the so-called ‘missing middle’. With its tech and cluster-based approach, Aye can fill this gap. FMO’s loan will be used for on-lending to micro-entrepreneurs. At least half of these will be geared towards female entrepreneurs.

Mr. Sanjay Sharma, MD and Founder of Aye Finance said, “While we have women as co-applicants for over 95% of our loans, we believe we can do more in enabling the women micro enterprises of India to bring about a more transformative impact on the economy. We expanded our branch network this year to the states of Bihar, Jharkhand, Gujarat & Maharashtra which have a prevalence of women entrepreneurship and with these funds from FMO we will be supporting the growth of women led enterprises in these states as well in the other 14 States that we have our presence.”

Linda Broekhuizen, Chief Investment Officer FMO said: “We are proud to onboard Aye Finance as a client of FMO. The debentures issued by Aye are particularly interesting as the on-lending will be to micro entrepreneurs, of which half will be dedicated to women entrepreneurs in the financial inclusion area of underbanked end clients. FMO’s partnership with Aye therefore significantly contributes to SDG 5, Gender Equality and SDG 10, Reduced Inequalities.”