Partnering With Prayaan Capital to Serve India’s Small Businesses

MSMEs are the lifeblood of the Indian economy. Approximately 70 million small businesses cater to the diverse needs of their markets while providing employment to nearly 300 million people. It would not be hyperbole to say that the growth of MSMEs is the growth of India.

Credit is the lubricant of business growth, and one of the biggest challenges MSMEs in India face is the limited availability of credit. RBI data triangulates to an approximately $300 billion credit gap for MSMEs today, despite the substantial efforts of the banking and NBFC ecosystem to solve this over the last decade. 

We have seen this firsthand through our investments in Five Star Finance and Finova, who have both gone on to serve these customers well, build valuable businesses, and continue to see significant growth over the past few years. We believe it will take many more of India’s best founders, teams, technology, and capital over the next several years to fully enable MSMEs to be included in the formal financial system.

We believe that Ranga and the team he has assembled at Prayaan Capital are part of the answer.

We have known Ranga for about 15 years now. First, when he argued for us to invest in affordable housing and MSME finance companies during his investment banking career, and later during his decade as an operator and leader at Five Star Finance, where he worked on the ground to help the first wave of NBFCs solve this very problem.

Over the next decade, he is keen to herald a new and fresh attempt at solving this problem, building on his learnings from having done this at scale, combined with what technology allows us to do today. We are excited to partner with him from day one of this journey.

The first generation of MSME lenders built value and scale through a branch-based distribution model, with disciplined execution across sourcing, underwriting, and collections. In the post-LLM era, each element of the MSME lending stack can be (and should be) reimagined. That’s what Prayaan Capital is attempting to do.

Marrying age-old, branch-led, distribution with a technology-first sales and collections approach. Marrying soft, on-ground indicators with digital footprints. Marrying experienced operators with new tools to help them succeed. A marriage that can build a differentiated and enduring company in this category.

We are very excited about what the future holds for Prayaan Capital, and for Ranga and his team as they embark on this journey. We hope they can create a meaningful dent in the MSME credit gap, and in doing so, help enable India’s growth over the next many decades.