Northern Arc Prepares to Strengthen Direct Lending Business

Northern Arc Capital, a non-bank finance company (NBFC) that provides access to debt to underbanked individuals and businesses in India, plans to step up its direct lending business to focus on small business lending (SBL) , consumer loans, microfinance and middle market loans to emerging companies.

“In the last six months, we’ve had a large cash outflow on this (direct loan) book. In fact, on a cumulative basis, we have almost five lakh loans, which have been disbursed through this platform, of which we have made almost three lakh loans in the last quarters. So there was reasonable traction in the second quarter, ”said Bama Balakrishnan, COO, Northern Arc, Activity area.

Also Read: Northern Arc Structures and Executes Nabsamruddhi Finance’s First PLI Investment

Northern Arc creates a platform to connect millions of borrowers to major debt investors through a combination of capital, products and partnerships. She has structured several innovative products in the Indian market, including multi-originator securitization (MosecTM), covered bonds and the issuance of pooled loans / bonds.

Under direct lending, Northern Arc has two segments: (1) Retail, which includes Small Business Credit (SBL), Consumer and Personal Credit, and Microfinance, and (2) Mid-market, in the under which it provides structured credit lines for working capital. needs and term loans for capital expenditures.

“Overall, the direct lending business contributes almost 20% of all assets under management, which has grown significantly over the past three years,” Balakrishnan said, adding, “while the party retail accounts for 10 to 12% of assets under management. , around 7-8% come from the mid-market segment. “

The NBFC expects its direct lending business to represent more than 25 percent of its total assets under management over the next two years.

In partnership with more than 30 credit institutions, Northern Arc has disbursed over 1,300 crore in direct loans. Some of its partners include Lendingkart, Capital Float, and Udaan for small business loans, and ZestMoney, Early Salary, and Krazybee for consumer and personal loans.

“Our average ticket size for microfinance loans is 30,000 and for consumer and personal loans it is 25,000 to 30,000,” Balakrishnan said, adding: “Although we do provide small business loans up to 20 lakh, a large part of our loans in this category are less than 5 lakh.

As part of the middle market, Northern Arc offers structured credit lines for working capital and term loans for capital spending focused on emerging companies in sectors such as healthcare, logistics, food. and agriculture, clean energy, education, IT / ITeS and B2B services with an average ticket size of ₹ 10-12 crore.

Read also: Northern Arc Capital facilitates the external financing of Asirvad Microfinance

Balakrishnan said the current mid-market AUM is around 200 crore and the segment is expected to stay at 7-8 percent of the overall AUM. The retail AUM, currently around 350 crore, is expected to rise to over ₹ 500 crore over the next two to three quarters.

“We certainly hope to increase disbursements to retail where we hope to see some growth over last year’s numbers and increase assets under management to at least an additional 15-20% in terms of growth, provided that the risk metrics are kept and the credit draw takes place, ”she added.

Regarding the fundraising plans, Balakrishnan said, “We were able to raise significant cash in the first half of the year and we also have a healthy pipeline for the second half which includes both domestic and offshore lines. We are therefore quite confident that the liability will be favorable, both in terms of quantum and cost of financing that we are seeking. “

In May, Northern Arc raised $ 50 million in debt financing from the American International Development Finance Corporation (DFC) to support its growth, meet the liquidity needs of its institutional clients, and lend to small businesses and individuals. .

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