The UK government’s development finance institution CDC Group has led a Rs 120-crore investment round in financial services firm Veritas Finance along with existing investor Lok Capital. The round saw the CDC Group invest Rs 65 crore while impact investment firm Lok Capital invested Rs 45 crore along with participation from existing investors P Surendra Pai, former executive chairman of Murugappa Group and his wife.
The CDC Group has committed to further invest Rs 35 crore separately in debt, taking the total fund raise by VeritasBSE -1.98 % Finance to Rs 155 crore in this round. A large part of the investment by Lok Capital has been made through its third fund — Lok Capital Growth Fund.
The Chennai-based firm, which was registered with the RBI as a non-banking financial company in 2015, lends to micro and small enterprises, providing loans to first-time borrowers, helping them move away from the informal lending system. Veritas’ loan book typically tends towards the services sector including hotels, catering contractors, electricians, kirana stores, textile units, fruits and vegetable merchants, etc.
“Currently, Veritas disburses a little over Rs 30 crore per month, adding about 1,500 customers each month. We expect to disburse above Rs 400 crore to close FY18 with a loan book of about Rs 330 crore,” said D Arulmany, founder of Veritas Finance.
A large part of the capital raised will be used to bolster product innovation, expand to newer states such as Andhra Pradesh, Telangana and Odisha and deepen Veritas’ presence in existing states and union territories.
Veritas currently has about 60 branches and 97 micro-centres across Tamil Nadu, Puducherry, Karnataka and West Bengal.
“Being a key job-creator, the MSME segment forms the backbone of the informal Indian economy. Like in any other business, credit and finance are a key requirement for MSMEs; however they find it difficult to access finance given the lack of formalization in the sector. Amongst the providers in this space, Veritas stands out because of the management’s dedication to its borrower segment combined with their knowledge and experience. This has manifested into rapid progress in the business while simultaneously keeping credit quality at acceptable levels,” said Nikhil Balaraman, South Asia Director at CDC India Advisors.
“Both the MSME lending and affordable housing finance models are hinged on the ability to assess informal incomes in a viable manner. We started backing such players in Fund II and with proof of concept having been established are extending these themes to Fund III with more confidence in their ability to scale. Veritas falls right in the centre of this thesis for us,” said Venky Natarajan, co-founder and Partner at Lok Capital.
Veritas Finance expects the existing states to help the business grow to about Rs 600-700 crore by the end of the year. The firm also expects additions to existing product lines along with entry into newer markets to help it reach a loan book of Rs 1,000 crore by FY19.