Prashant Pitti, the co-founder of EaseMyTrip, a travel company, has announced his plans for a new startup. This venture aims to establish a co-lending platform that provides collateral-free loans to micro, small, and medium enterprises (MSMEs) in rural areas of India. Pitti, who previously founded the dating app Profoundly in 2017, tweeted about his intention to start a new platform called Optimo, which will serve the underserved MSME market. Read More Business News on our website.
The objective is to address the lack of accessible and affordable credit, which is a major obstacle to the growth of MSMEs. Pitti plans to hire over 100 professionals in various roles based in Bangalore, including risk assessment, credit evaluation, finance, human resources, operations, sales, digital technologies, and more. The new venture is expected to launch in approximately one month.
The current scenario shows an increasing trend in bank credit deployed to MSMEs on a yearly basis. In the fiscal year 2022, bank credit to MSMEs grew by 24.6% compared to FY20 and by 12.7% compared to FY21, as per official data. However, despite these improvements, MSMEs still face challenges in accessing affordable credit. The Reserve Bank of India’s data reveals that in May of this year, Rs 20.20 lakh crore of bank credit under priority sector lending, constituting 14.5% of India’s total non-food bank credit of Rs 138.5 lakh crore, was allocated to the MSME sector.
In a report by the UK Sinha Committee commissioned by the RBI in June 2019, it was estimated that the MSME sector had a credit gap of Rs 20-25 lakh crore. Additionally, a recent study conducted by Avendus Capital, an investment banking company, projected a staggering credit gap of $530 billion in the MSME sector. Co-lending has gained popularity as a model in India as it allows banks to diversify their portfolios and enables non-banking financial companies (NBFCs) to access cheaper sources of funding.
This leads to reduced risk exposure and ultimately lowers the cost of funds. Notably, co-lending deals worth Rs 1 trillion are expected to be signed between banks and NBFCs in the current financial year. Public sector banks alone declared a co-lending portfolio of Rs 25,414 crore for FY23, as reported by FE in April of this year.