Singaporean startup oCap taps into underserved Indian financing market through local tie-up

It aims to target 55 million Indian merchants through India’s GoCapital.

Singapore-based oCap Management that provides financing to businesses said Monday it has picked up 25% stake in GoCapital, a Chennai-based lending company, in a move to tap into India’s vast micro, small, and medium enterprises (MSMEs) market by providing them with short-term loans.

The partnership between oCap and GoCapital, carried out via the former’s wholly-owned subsidiary oCap Asia Pacific Holding, will lead to share-subscription between the two, the company said in a statement.

GoCapital is one of the over 11,000 Non-Banking Financial Companies (NBFCs) in India that are allowed to lend money to borrowers in the country.

With this undisclosed investment in GoCapital, oCap has found the stepping stone it was looking for its entry into India, one of the world’s largest MSME markets. On the other hand, GoCapital is likely to be equipped with technologies provided by oCap to help broaden its product suite in India, as well as to incorporate AI and Machine Learning into their offering.

oCap recently launched Merchant Cash Advance (MCA) in Singapore—a product that allows businesses to have access to money without providing any collateral, instead, it needs to give the financing company a percentage of their daily credit and debit card sales, in addition to the service fee. The two companies expect to roll out the product in India and the region of South Asia as well.

oCap targets MSMEs that accept electronic payment to provide immediate cash for a share of the merchant’s future receivables. India is slowly moving towards a cashless economy as instant-fund transfer mechanism Unified Payment Interface (UPI) has gained momentum.

A 2017 report by International Finance Corporation said the financing gap for MSMEs in India is approximately USD 230 billion, representing 68% of the total gap in South Asia.

This year, taking cognizance of the increase in gross bad loans in the NBFC sector, India’s central bank Reserve Bank of India (RBI) came down hard on such entities and canceled the license of over 1700 NBFCs. The gross bad loans in the NBFC sector increased from 5.8% in FY 2018 to 6.6% in FY 2019.

Most of these license cancelations were directly related to NBFCs’ inability to comply with the RBI-mandated minimum net owned funds (NOF) or reserve that they are supposed to have. The apex bank increased the NOF from USD 35,000 to USD 280,000 in 1999. NBFCs were given time till 2017 to comply with the new guideline.

However, in FY2018-19, the Indian micro-finance industry posted a growth of 38% in terms of their cumulative gross loan portfolio.