While credit underwriting is cash flow based with a range of approaches – varying from personal discussions which are used to estimate credit worthiness of small informal enterprises to financial analysis in case of formal enterprises and also leveraging the digital data sets such as trade flows, banking and taxation information available in addition to credit bureau data. 

As time went by, in 2013, NACL ventured into vehicle finance. Here also it operates with originator partners as well as lending to under-served individuals and businesses in need of vehicle finance. “Our focus under this sector is on end-borrowers exploring financing for purchase of commercial vehicles used for commercial transportation of goods or passengers, and for purchase of two-wheelers,” adds Fernandes. The loans to such end-borrowers are typically secured by a hypothecation of the vehicle which can be repossessed after following due process in the event of default. 

Agricultural supply chain finance, consumer and affordable housing followed in NACL’s gamut. In India, the economically weaker sections and low-income group segments in housing are under-served. However, with focus through governmental schemes and subsidies, there has been a renewed thrust on organised supply of affordable housing through incentives for affordable housing projects. 

“Operating in this sector since 2013, we again work with partners, being housing finance companies, who lend to self-employed or salaried borrower segments for the purchase of residential property (primarily for self-occupation), home improvement and home extension. The loans to such borrower segments are typically secured either by way of deposit of title deeds or a registered mortgage of immoveable property,” says Fernandes working with agriculture supply chain financing since 2016, providing post-harvest services and financing in the agricultural and allied segments.

“This includes players who provide commodity warehousing services and warehouse receipt financing as well as players who finance agricultural and allied activities, often working through aggregators such as farmer produce organisations or dairy cooperatives. The loans are short term facilities for 3-12 months based on the cropping pattern, shelf life, harvest period, location and warehouse infrastructure.” 

Meanwhile, NACL has investors like LeapFrog (22.75 per cent), Augusta (17.93 per cent), Eight Roads (10.34 per cent) and Dvara Trust (9.78 per cent), besides other shareholders. “NACL is a rapid growth story. This inspiring story of both profit and purpose proves that meeting the need for financial inclusion in India is a compelling investment proposition. With this exceptional management team as they reach increasing millions of underserved people across the country,” observes Michael Fernandes of LeapFrog who has participated in the 2016 equity investment round of NACL.

When JICA, Japan’s governmental agency that works towards promoting economic and social growth in developing countries, invested in Northern Arc recently, Keiichiro Nakazawa, Sr VP of JICA, disclosed that “Northern Arc Capital is a unique and important financial institution that supports funding of the Indian NBFC sector, which plays a key role in promoting financial inclusion in India. We expect more Indian women to have access to financial services through this partnership with NACL. This loan is our first co-financing with USDFC in India.”

“Technology is where we stand to gain,” says Fernandes talking about Nimbus, which is NACL proprietary technology system that “enables us to scale up business operations with execution and functional efficiencies and data analytics. Nimbus has been the backbone of our growth as a platform.  In the span of the last three fiscals, Nimbus has provided an impetus to our platform that has allowed us to engage with our originator partners, and investor partners, mid-market companies and execute and conclude a host of loan and other debt investment transactions, among other things like integrate the full spectrum of internal functions like client on-boarding, approval of credit exposure limits, credit decision-making, data-driven risk monitoring, documentation, etc. Apart from adoption, Nimbus is also used by certain key stakeholders in the business.”

As of March 2021, the originator partners have raised more than Rs20,084 crore in funding through 796 financing and syndication and structuring transactions executed through Nimbus. Similarly, certain key benefits offered by Nimbus to the investor partners, include providing curated opportunities for investments and enabling digital execution of a wide range of transactions. “This has helped our company cultivate three advantages: scalability, precision, and efficiency in terms of turnaround time. In FY21, almost 90 per cent of the total value of transactions happened through Nimbus,” adds Fernandes.

Financially, the company has been profitable. While revenues in the last three years have increased from Rs601 crore (2019) to Rs681 crore (2021), the margins have been under pressure as the net profit has declined from Rs115.4 crore to Rs76.6 crore. 

“We have an Alternate Investment Fund management platform that we run. Till date we have launched nine funds of which one is an offshore fund. Our funds have done very well in terms of tracking the returns to investors. These funds basically invest in the same underserved sectors. The fund management business is about Rs1,500 crore,” sums up Fernandes.

Now, NACL has filed the DRHP to raise an IPO comprises of issue of equity shares aggregating up to Rs300 crore and an offer for sale from the existing shareholders. The company may, at its discretion, consider issuing equity shares on a private placement basis for cash consideration aggregating up to Rs150 crore, prior to filing of the DRHP with the ROC as a pre-IPO placement. The net proceeds from the fresh issue are proposed to be utilised towards augmenting the company’s capital base to meet its future capital requirements.