Small-business lender Finova Capital raises $135 million to expand loan book, invest in tech

Jaipur-based Finova Capital, a non-banking finance company (NBFC) that lends to micro, small and medium enterprises (MSMEs), has secured $135 million in Series E funding from Avataar Venture Partners, Sofina, and Madison India Capital as it looks to expand its loan book across regions and invest in technology.

Existing investors Norwest Venture Partners, Peak XV Partners, Faering Capital, and Maj Invest doubled down in the round, providing a partial exit to unnamed early investors, the company said in a statement on Tuesday.

The deal marks Avataar Venture Partner’s first investment in India’s financial services sector.

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Founded in 2015 by Mohit and Sunita Sahney, Finova targets micro entrepreneurs and semi-skilled professionals who have limited access to formal financing. It has more than 400 brands across 16 cities, and assets under management (AUM) amounting to ₹3,000 crore.

Finova analyses borrowers’ cash flows for credit assessment instead of asking for formal documentation, as the entities it caters to can rarely provide a formal credit history. The company has created custom templates that assist in credit underwriting across various sectors. Bengaluru-based Unitus Capital was the financial advisor to Finova.

The company has raised almost $125 million to date. Its most recent valuation was $376 million as of March 2022, according to data from market intelligence firm Tracxn.

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Faering Capital is a mid-market-focused private equity (PE) firm founded by Sameer Shroff and Aditya Parekh, the elder son of HDFC group chairman Deepak Parekh. Sofina is a global investment company listed on the Euronext Brussels.

Anirudh Singh, partner at Avataar Venture Partners, said, “As Avataar’s first investment in the financial services sector, we are delighted to be partnering with Finova, which is the market leader in the MSME financing space in North, Central, and West India. The founders – Mohit and Sunita – and the entire team have demonstrated tremendous execution capabilities to build a technology-driven platform which is highly profitable and has grown seven-fold in the past four years driven by strong underwriting and origination capabilities.”

Govt’s plan to help MSMEs get bank loans

In May, Mint reported that the government was looking to strengthen the underwriting model for MSMEs to make it easier for them to access loans and reduce the number of defaults.

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A person aware of the developments said a team was set up to strengthen the underwriting model and expand the use of digital public infrastructure among MSMEs and self-help groups. It falls under the working group for enhancing responsible lending to MSMEs, formed by the department of expenditure under the finance ministry.

"There is no collateral as such in terms of lending towards smaller businesses. This is what the group is looking at – how the risk can be assessed and covered," this person said.