In this interview, we talk to Gaurav Anand, co-founder of Namaste Credit, about his start-up journey. The interview walks one through the journey of a founder. Gaurav discusses how he decided to switch from a job with the largest rating agency in NYC to starting off into uncharted territory. What drives an entrepreneur and what are the challenges and how he perceives them. Gaurav also shares his views on why finding a real problem and solving that problem is the bedrock of entrepreneurship and how an enterprise needs constant passion and relentless execution.
Gaurav runs Namaste Credit, an online marketplace founded in 2014 that dynamically matches SME businesses looking for financing with lenders. It leverages on technology to obtain optimal loan products from lenders and NBFCs across India. In this interview BCAJ Editor Raman Jokhakar speaks to the young founder of a FINTECH startup to tell his tale.
Can you tell us about your background, your life journey till you reached that moment of choice, deciding that you want to start something on your own?
I am originally from Delhi, did my MBA from N.M. College, Mumbai. Along with my post-graduation, I did CFA and Financial Risk Management (FRM) as well. My first job was with Credit Suisse. I spent about four years in London as part of a training team. Then I moved to New York to work with the world’s largest rating agency Moody’s, leading the North America practice of risk analytics, advising financial institutions, including Wall Street banks. That’s where I met my co-founder Lucas Bianchi. We thought of moving from a cushy job – from monthly pay cheques to a startup life. Essentially, it was based on two key pivots – a passion and a drive to make a meaningful impact on others’ lives; and second, the supreme confidence that we can execute our ideas and our vision. These beliefs gave us the urge to take the plunge. We wanted to touch the larger eco-system, in fact, improve the eco-system – in this case the SME lending space – and impact a wider audience.
You felt that these features were not present in the system?
People are always looking for the bigger and wider spaces available in the world, where we can go and disrupt them, and also the right time to disrupt them. We chose and started in India because India has the largest SME base, and from the technology point of view, India has a large market potential. We believed this was the right time for this space to get disrupted. We saw the huge market potential and the right timing for us to start.
What were the learnings from your earlier work profiles / experiences that helped you to get the confidence to execute?
These are large institutions / corporates where you learn how to work within the rules / framework and how to be super-efficient at it. People who are very successful at large corporates are very good at working within the rules. You do not have significant room to push the envelope so you have to be super-efficient to play within the rules and yet execute very well. Whereas in the startups world, there are no rules, no regulatory body for startups, you write your own rules and play by your own rules. However, having worked in a more restrained environment, that allows you to narrow down, put your thoughts and execution plans in action and work on them. This gives you that added discipline in a startup, otherwise it is easy to get carried away with no ring-fencing.
Considering your experience, exposure and knowing where India was, you could spot the opportunity. Can you take us through the process – spotting a problem, believing that you can solve it and choosing the right time to do it?
In 2013-2015, we saw disruption happening in the developed world. Fintech had started to play a significant role in the US and European markets. There was maturity in the financial market from the Fintech point of view. If you break the developed world into smaller portions and rule out the purchasing power parity, these are small islands of opportunity for you.
Although a company like PayPal has been in the market for two decades, the new-age companies, especially in the SME lending space, were starting to take some giant strides. So, from the timing perspective, we could either be a part of a crowded market or jump into a bigger market with 50 million SMEs with hardly any technology adoption and disruption and create our own niche or brand. We chose the longer path because of lack of digital infrastructure then. The first two years were a struggle because of lack of digital infrastructure where these initiatives could be scaled up. We chose to bite the bullet and knew we could make it through our execution.
Being a founder of a startup, having an idea in place and the decision to leave the US… as a founder, what kind of challenges you had visualised – what if all this didn’t work out?
It was a big personal decision. I had the vision for this startup and my family supported me to make it work. But the real driving factor was the passion and the urge to make a much bigger impact than what I could think of making as part of the corporate world. Although we were working with the largest financial institutions in the world, we were still away from the ground reality. It was a personal decision and also a decision of the family. Had we remained in the corporate world, the impact would have been quite shielded or guarded. It would have a limited multiplier effect in a broader eco-system. Therefore, we thought that we had to develop our skills and get to the bottom of the problem to emerge with an impactful solution.
Bearing in mind the uncertainty in Indian regulations (say a sudden new tax) and where there is no answerability for such flip-flop changes, did you think of the risks while returning to India with the startup idea in mind?
The first challenge was to get a grip of the sheer size, complexity and diversity of India and assimilate certain facts. It was like dealing with 28 countries because in India each state behaves like a country. To have a pan-India presence, we have to deal with a lot of moving parts; like the Central and State Governments are at different tangents, they take whimsical decisions on the fly. Even with respect to day-to-day operations or lifestyle, we have a lot of complexity, unlike the developed world where most things are automated or pre-set. India doesn’t work as per that clock.
This was the first and the biggest challenge – setting up new and better ideas in India is difficult because everybody questions you due to lack of successful predecessors. Seriously, you have to convince yourself first, then your client and then your other stakeholders that this idea can really work in India.
The next challenge for a new venture is to have and find like-minded people, both from the aptitude and from the passion points of view. It is very important to have the right team. We have been very conscious of building the right partners in our business model, the right teams and the right functional heads. Today, we have a 300-member team and we have various leaders in each function. Like-minded and similarly driven people – from skill set, to vision and the execution point of view.
The third biggest challenge was that being in India tends to give you a false sense of security, that I have a fallback option, my family is here – they can afford it if I have to relinquish my startup and live an ordinary lifestyle. Therefore, to stay away from leaning on our support system, we set up our headquarters in Bangalore and not in Delhi – we set up in a new state and started from ground-up in a new city.
Finally, you need to have that constant drive, to literally question your instinct – day in and day out – ‘am I doing the right thing, am I on the right path?’ But then when you don’t have successful predecessors to guide you, you become your own guide and you become your own positive agent.
How would you classify the different stages of your journey, these three years since having started?
I can divide these years into broadly three stages:
1. Proving the concept, which also encapsulates the team formation (what kind of founding team); are the building-blocks strong enough or not; when you continue to get questioned on proof of concept do you prove that it works?
2. In India there is a slight advantage in proving the concept, in that you can taste some initial success. It gives you confidence that the concept is working with limited stakeholders. This is where you taste initial success;
3. The third stage, where we are right now, is how to scale it up in such a wide and diverse country; scale up consistently and at a pan-India level. How can we work it consistently and where are the levers?
Most of the foreign investment is coming to India chasing the same middle class that comprises of the top 20 to 30%. There is hope that they will become more upper class (30 to 40%) and the remaining 80% will eventually become that 20 to 30% middle class. Everybody is betting on the fact that India as a country has scale, is still growing at 7 to 7.5% average for the last four to five years, it has democracy and the rule of law. The hope is that purchasing power will eventually catch up with the advent of technology and with more globalisation.
In our business model, we also struggled with the same. We were targeted on SME lending. This has its own challenges, so the proof of concept was first to find out whether my solution is cutting across all industry and all segments of SMEs that we are dealing with. Secondly, after tasting some initial success, how can I make my solution more pervasive and more omnipresent? This is what we continue to prove. I think we have clearly emerged as one of the largest online SME lending market places. We are the only company in Fintech which licenses its technology to some of the leading financial institutions who are also suppliers of credit on our platform. Those,
I would say, are the three stages.
What kind of professional support did you receive from chartered accountants or any other professionals? Was it useful and would you like to say something about it?
In the Fintech space, the chartered accountant community has a massive role to play. In fact, in our business model, CAs played a significant role. We have a network of 7,000 influencers who work with us digitally, out of whom 2,000 plus are CA partners.
Our CA helped us incorporate our company in India and also register the patent and a company in Mauritius. He was extremely helpful as we had limited insight about the rules of the game and what regulations would apply. In my view, professional help of CAs is a must for initial infrastructure blocks and regulatory adherence. I believe the CA community has the wherewithal and carries a responsibility to play a much more active role in guiding startups, in nurturing them and also participating in their growth. The advice of a CA does influence when it comes to taking credit decisions in SMEs. It has been a great help from our CA partners network and a big thanks to the whole community.
Some startups are bootstrapped and some go for other funding options. How did funding work in your startup business?
Right from day one we approached the business with the thought that we should not be solely dependent on external funding to make our idea work. We always wanted to use external or equity funding in the business as the growth engine, but not as a proof of concept. In India, people don’t fund you on the basis of the idea; even we had to go through the path where we had to show proof of the concept’s success in the initial stage. We actually ended up scaling at profitable economics which was a great validation that this model in SME lending is a profitable venture.
You need capital to scale it up since you have to deploy a lot of capital expenditure in the business and you are trying and testing out new things, that’s where you actually end up spending most of your equity investment. However, if the fundamentals are strong enough – then if tomorrow there is no funding, your business can run on its own. Our motto was that our business model should be self-sustaining even if tomorrow there is no funding… we should run on our own lends. Funding was for growth.
And it was easy to find the right chemistry with the venture partners and all that?
I think it is not easy because in India still a lot of venture capital people do not have a real-life entrepreneur experience to understand the challenge of running a business. Most of the VCs in India are still boardroom-grown or boardroom-groomed without real-life experience of how to create scale and execute; so when we finalised with NEXUS, although we had three or four more options on the table, the reason we went ahead with them was that they had a global reach; so as and when we want to grow globally, their portfolio has a lot of global companies, which means a better eco-system and a network to leverage and penetrate. Besides, some of the partners had real-life entrepreneur experience so they could connect with the challenges, the execution, the scale and the day-to-day humdrum of the entrepreneur. We can have a much more tactical and strategic discussion and execution-oriented discussion with them rather than just having a talk on, say, this is the GMV or “this is the top ten we have to achieve by… and I don’t care how”.
But to your question – yes, it’s difficult to get the right frequency, to get the right chemistry; we have seen a lot of young entrepreneurs who are just out of college getting to the nitty-gritty of choosing the right venture / investor partners and ending up diluting the whole entrepreneurial instinct. We were lucky because we had prior experience in the corporate world, we could figure out who were the good partners; and then the conviction that we wanted like-minded people as part of the deal.
Having been part of the Fintech space in western countries, how do you see the Fintech landscape in India currently (within which you are operating) and how will it shape up in future?
In my view, Fintech is a global phenomenon which has actually matured into a global juggernaut. It is here to stay; it continues to change and create an impact in the overall financial eco-system globally.
The journey of Fintech in India for the last eight to ten years – Fintech initially starts by solving basic problems like e-commerce or payments solutions that are low value but significantly impactful solutions. This is how it happens in the western world, too. Fintech improves the core infrastructure, digitises it, automates it. The journey typically starts from B2C and then moves towards B2B since that is slightly more complex and more nuanced. Thereafter, you move up the value chain.
At Namaste Credit we are essentially solving the SMEs’ credit-lending problems. It is one of the most complex and heterogeneous spaces given the diversity of SMEs. It is a less disruptive market. We see a two-year trajectory – how Fintech is nurturing and getting into a more complex space and chipping in on edge as of now before becoming a dominant player.
We believe that the next stage is an amalgamation of AI with Fintech. We are very proud to say that we have filed three patents – two of these are an amalgamation of Fintech which is our core engine, and topping it up with artificial intelligence and machine learning. The space we operate in is more up the value chain and more complex, where we are adding the power of artificial intelligence to process the data which is a critical component in SME lending to create more predictive analytics back to the financiers, so that they can lend faster and lend more. From the SMEs’ point of view, it’s accessing the platform that uses artificial intelligence for matching which gives them the highest conversion rate for loan application and funding.
Can you tell us a bit about how the process works on your platform if someone logged into your portal?
For the B2C side, we have the origination engine for SMEs and our network of influencers. They can digitally upload the documents on the platform. Based on this, our credit under-writing engine performs the credit assessments. Afterwards, it goes into the matching algorithm, which has the policy framework of 60 large financial institutions (probable lenders). The matching algorithm closely matches and shows where this SME is most likely to get the loan from and what is the right loan product, given its requirement and credit assessment. By a combination of these two factors – credit assessment and matching – it results in an over 70% conversion rate of applications through our platforms.
The second engine we have built is an automation engine which is built on AI and machine learning, given on license to banks. The issue we are solving is, how can banks take better and faster decisions in credit and SME underwriting? In this we analyse 100 times more data points than the traditional underwriting function at banks. Since we use automation, we are able to process in 90% less time. This is the power of technology and should allow banks to disseminate credit to the SME segment which is due.
Can you explain how do machines work on uploaded documents?
We have trained our OCR to read the scanned documents from different banks. On the analytics engine it fits in the slot so that we can get a highly-qualified credit assessment. Then it gets matched with banks’ policy, which gives a super-optimal outcome. We are solving a discovery problem – that for an SME what is the right product, which is the right bank; and from the banks’ point of view, which is the right SME they should lend to? By bringing technology and by adding layers of advanced data on the core engine, we are able to make it much more intelligent. We rely less on user input data and more on credible and verified information like bank statements, financial statements, GST returns, etc., on the basis of which banks can take a credit call.
Do you feel that there is some missing link in the SME lending space? Is there a missing ‘good to have’ enabler for lending to meet its logical end?
I think in India we have somehow not been able to bridge or build a deep credit market. Whatever little credit market we have has literally been accessed by corporates. For SMEs there is still no secondary market. Due to this, banks are very selective in SME lending because they know that regulation is not hard enough for them to go after the SMEs, so they (the banks) would rather have a proven and conservative credit policy before they lend.
Imagine a scenario where you have the data being readily shared amongst the banks. Secondly, you also have a much more vibrant and deeper secondary market where you can actually float your own assets much more freely than what happens today where you have to securitise almost your entire portfolio with some other party. Securitisation is a much more illiquid form of secondary market. Imagine you have a very deep secondary market, a very clear and transparent data flow amongst the banks (not just the CIBIL score – which accounts for a tenth of the component), you still have a 90% component which is not shared amongst the banks. It allows each of the lenders to (a) risk-price the SME better, and (b) be able to freely trade or lend to the SME based on the risk-based pricing that each lender comes up with. Today, everything is an island. No data-sharing or exchange or performance data-sharing. Due to this the deserving SME gets marginalised.
For someone who is thinking of starting on their own, what are some of the lessons that you would like to share?
For any entrepreneur, it’s very important that they pick up a problem to solve that has a meaningful impact. We do come across lots of ideas but are all the ideas solving the real problems of people? That’s the first and foremost decision you need to arrive at before turning an idea into a business. Once you cross this hump, you need to put all your might and ingenious approach to make sure that your idea succeeds.
India is still a tough market to operate in, it has its own legacy issues and it has a high cost of running business. Although we hear a lot about venture capital funding in India, no one is giving funding on the basis of ideas. This is in contrast with the developed world where you can raise decent money for a solid idea. In India, despite having a good idea you need to really prove execution and you need to show some scale for anybody to trust you with funding.
