Arka Fincap Introduces 'Uday' Loan Service for MSMEs in Smaller Cities

Arka Fincap Limited, a subsidiary of Kirloskar Oil Engines Limited (KOEL), has unveiled a new loan product named 'Uday'. This initiative aims to provide Small Ticket Loans Against Property (STLAP) specifically designed for micro, small, and medium enterprises (MSMEs). With loan amounts ranging from ₹10 lakh to ₹30 lakh, 'Uday' seeks to address the increasing credit demands faced by small businesses in Tier II, III, and IV cities across India.

Addressing the Credit Gap in the MSME Sector

The MSME sector is currently grappling with a significant credit gap estimated at $530 million. Many small businesses struggle to access formal credit due to challenges such as insufficient documentation or collateral requirements. This has compelled numerous MSMEs to rely on informal lending sources, including friends, family, and local moneylenders, who often offer unregulated, high-interest loans.

Navin Saini, Chief Business Officer for Retail & MSME Lending at Arka, highlights the urgent need for structured credit options in this sector. He notes that while many MSMEs seek unsecured loans, the 'Uday' initiative specifically targets those who own property but lack access to organized credit solutions. By offering loans against property, Arka aims to provide these businesses with lower interest rates and extended repayment terms, ultimately promoting sustainable growth.

Benefits of Structured Credit Through 'Uday'

The 'Uday' loan product aims to offer MSMEs a pathway to structured, formal credit, providing them with much-needed transparency and predictability in their financial dealings. Traditional informal lending options often lack fixed repayment schedules and reasonable interest rates, making it challenging for MSMEs to manage their financial obligations effectively.

"Uday offers structured, formal credit that provides transparency and predictable repayment plans, helping MSMEs manage their growth sustainably," Saini explains. This initiative also allows MSMEs to enter the formal credit system, enhancing their financial literacy and planning capabilities.

Initial Rollout and Expansion Plans

The initial rollout of the 'Uday' loan service will take place in five key locations in Tamil Nadu, including Salem, Vellore, Tirupur, Porur, and Coimbatore. This launch represents the first step in a broader, pan-India expansion aimed at reaching MSMEs in various regions.

Vimal Bhandari, Executive Vice Chairman and CEO of Arka Fincap, expressed optimism about this initiative, stating, "Our entry into the STLAP product segment with 'Uday' is part of our ongoing commitment to empower MSMEs, particularly in underserved areas." The company's vision is to facilitate rapid and reliable access to credit, thereby fostering entrepreneurship at the grassroots level and driving economic growth.

The Importance of Financial Inclusion for MSMEs

Arka Fincap's initiative underscores the critical need for financial inclusion in India's MSME sector, which serves as the backbone of the country's economy. By providing tailored financial products, the company aims to enable small businesses to thrive despite the existing challenges in accessing formal credit.

The significance of 'Uday' goes beyond just offering loans; it aims to instill confidence in MSME owners, allowing them to invest in their businesses without the constant fear of exorbitant interest rates or unstructured repayment plans. With a well-structured loan system, MSMEs can focus on growth and innovation rather than merely surviving in a challenging financial environment.

Arka Fincap’s Financial Footprint

As of June 2024, Arka Fincap boasts an Asset Under Management (AUM) of ₹5,768 crore, with 53% of this amount derived from its SME business segment. The launch of 'Uday' marks a strategic move to further solidify the company's presence in the financial landscape and cater to the needs of MSMEs across India.

The initial focus on the southern market is just the beginning, as Arka plans to expand 'Uday' to other regions in the near future. This expansion will enable a broader spectrum of MSMEs to benefit from the accessible and flexible credit solutions that 'Uday' aims to provide.

Conclusion

In conclusion, Arka Fincap's introduction of the 'Uday' loan service represents a significant step toward bridging the credit gap in the MSME sector. By focusing on the needs of small businesses in Tier II, III, and IV cities, this initiative not only supports the growth of individual enterprises but also contributes to the overall economic development of these regions. With a commitment to financial inclusion and empowerment, Arka Fincap is poised to make a lasting impact on the Indian economy through its innovative lending solutions.