Existing investor Norwest Venture Partners also participated in the round, the firm confirmed in a statement on October 29. The deal also included a secondary transaction component, giving a partial exit to some of the early investors. This also marks Avataar’s first investment in the financial services sector in India.
The Jaipur-based lender will use the funds to grow its loan book, invest in technology, expand geographically and by scale, it said.
The company leverages in-house tech stack to provide loans to micro-entrepreneurs and semi-skilled professionals (largely in the services sector) who have limited or no access to lending from formal financing institutions. Consequently, FCPL has adopted a business model where credit appraisal is based on a cash flow analysis of the borrower, instead of credit history.
The firm claims to have been profitable since the first year of inception, and has presence across 16 states with over 400 branches, and addressed over one lakh customers.
Within MSME financing, the company’s average ticket size is around Rs 3.6 lakh, primarily catering to self-employed clientele.
Finova has disbursed Rs 3,743 crore in loans, with around 73 percent disbursed over the last two-and-a-half years. The company’s disbursements increased 50 percent from Rs 897.33 crore in FY23 to Rs 1,349 crore in FY24. Higher disbursals have a positive impact on its net interest margins, which improved to 15.13 percent as of June 30, 2024.
"We are very excited to welcome our new investors and appreciate the support from our existing investors – Peak XV Partners, Faering Capital, Norwest Venture Partners and Maj Invest. Their belief in our ability to enable financial inclusion across the country and empower entrepreneurs in the heart of Bharat has invigorated our commitment to building one of India’s largest tech-led financial services company," said Mohit Sahney, founder and MD of Finova.
Anirudh Singh, partner at Avataar Venture Partners, expressed confidence in Finova’s leadership in MSME financing across North, Central, and West India, highlighting its technology-driven and profitable model that has grown seven times in the past four years. “We believe Finova will emerge as a pan-India market leader,” he said.
Focused on Rajasthan, Madhya Pradesh and Chhattisgarh, Finova has been expanding aggressively to newer states such as Karnataka, Andhra Pradesh, Telangana and Himachal Pradesh over the past year, a Care Ratings report said. It operates in 14 states with a branch network of more than 300.
“We are delighted to support Finova in scaling its operations nationally, and to partner with a talented management team that is taking a dynamic yet prudent approach to enabling financial inclusion in the country,” Tanya Sen, principal at Sofina, said.
Madison India Capital MD Surya Chadha emphasized Finova’s impact on financial inclusion. “We are excited to back Finova in reshaping MSME lending and driving growth.”
Financials
Finova recorded an impressive growth in FY24, with revenue jumping almost 60 percent to Rs 530 crore. It posted a profit after tax (PAT) of Rs 151.5 crore, a 71 percent year-on-year rise.
Despite catering to the high-risk MSME segment, FCPL has effectively managed collections to prevent minor delinquencies from turning into non-performing assets (NPAs), maintaining solid asset quality. As of March 31, 95.03 percent of its loans were repaid on time.
Its gross NPA and net NPA stood at 1.79 percent and 0.99 percent as against 0.97 percent and 0.32 percent in FY24, the annual report said.
