Chennai-based Veritas Finance Pvt Ltd, which provides financial services to micro and small enterprises, has raised Rs 30 crore (about $4.5 million) in a Series A round of funding led by Sarva Capital LLC.
Sarva Capital, earlier known as Lok Capital II LLC, is a venture capital fund managed by Lok Advisory Services Pvt Ltd. Venky Natarajan, managing partner at Lok Advisory, will join the board of the non-banking finance company as part of the funding round.
Caspian Impact Investment Adviser also put money in this round, Veritas said in a statement.
Veritas plans to use the money to disburse loans, increase the range of its financial products and services, and for expansion. It has 12 branches in Tamil Nadu and plans to have 35 branches in the next few months. By 2017, the company aims to grow its loan book size to Rs 200 crore from Rs 4 crore, increase the customer base to 5,000 from 200 and expand to Karnataka, Odisha and Andhra Pradesh.
NBFCs have been taking an increasing role in filling the credit void created by banks’ reluctance to lend to certain segments of the economy such as small enterprises. Many NBFCs have attracted PE funding over the past few years and some PE firms have set up their own NBFCs. In December, SME-focused NBFC Aye Finance Pvt Ltd secured Rs 20 crore (around $3 million) in follow-on investment from SAIF Partners and Accion.
A number of fin-tech startups have also emerged that aim to make it easier for micro and small businesses to raise capital. In February last year, online lending platform Capital Float raised $13 million from Sequoia Capital, SAIF Partners and Aspada. In July, financing portal for entrepreneurs and small businesses Lendingkart mobilised $10 million from Saama Capital and others.
“While there is a large gap in financing small businesses, we believe that specialized lending models are required to effectively cater to this segment,” Natarajan said.
Veritas Finance was founded in November 2015 by D Arulmany. It counts DBS Bank, Axis Bank, HDFC Bank and State Bank of India as its bankers. The company mainly provides working capital and business credit to small enterprises.
“Despite significant intervention efforts from many including financial institutions and banks, credit delivery to the MSME segment remains a huge challenge, given the heterogeneous nature and unorganized functioning of these enterprises,” Arulmany said.
The company also said that it has invested in credit intelligence methodology and a technology platform that assesses the credit requirements and mitigates the risk in catering to the informal segment while ensuring faster credit delivery.