Neil Patel

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Sanjay Sharma is the cofounder of Aye Finance which is a finance company that provides business loans to micro and small businesses. The company has raised $300 million from top tier investors such as CapitalG, FMO, Accion Venture Lab, and Aspada to name a few.

In this episode you will learn:

  • How microenterprises and their loans are performing after COVID-19
  • How to beat averages
  • What he’s learned from recruiting and hiring 3,200 employees
  • Why you shouldn’t wait to learn or gain more experience before starting your first startup


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About Sanjay Sharma:

Sanjay Sharma is the Managing Director and the co-founder of Aye Finance, a leader in providing working capital loans to micro enterprises in India that are new to credit.

Over 60mn micro-scale businesses in India are considered ‘un-lendable’ by banks and finance companies due to underwriting and servicing challenges.

Under his vision and leadership Aye has innovated on alternate methods of underwriting based on industry-cluster insights, data sciences and digitalized workflows to fill this huge gap in lending. Aye has been conferred with numerous industry awards and Sanjay is a regular speaker at national industry forums on solving problems of micro enterprises. 

Sanjay Sharma is alumnus of IIT-Bombay and IIM-Bangalore. During his 25 years in consumer lending, he has helped pioneer initiatives at in HDFC Bank, ICICI Bank and StanChart, that have defined the evolution of consumer banking in India.

Connect with Sanjay Sharma:

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Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have an entrepreneur that I think is going to tell us quite a bit of what he’s up to and the incredible innovation that is happening also in India. So, without further ado, let’s welcome our guest today, Sanjay Sharma. Welcome to the show.

Sanjay Sharma: Thank you, Alejandro. Thank you for having me on the show. I’m looking forward to speaking to you.

Alejandro: So, Sanjay, originally, you were brought up in a small town, in a steel town. How was this experience growing up for you?

Sanjay Sharma: It was a great experience in the steel city of Bhilai, where I was brought up and did my schooling. It was a small community, very [2:08] because it was all engineered from all across India. As children, I remember that we used to be outdoors most of the time. We did a lot of fun activity and lots to learn. I think that’s also what gave me a lot of grounding into the real values of life and the value of hard work.

Alejandro: Why is there so much engineering there?

Sanjay Sharma: In India, there is a very large number of people who finally go to engineering school. It’s an aspirational thing, I suppose. I think being from the steel city itself gave me some look into what engineers do. That is one of the reasons why I also went into an engineering school. I went to Veermata Mumbai and did my engineering there. I think part of it is the reason that I came from a steel town.

Alejandro: Very nice. Was there anyone in your family that was into business or was an entrepreneur? Or do you think that for you, it was more that you were born into it or born with it or something that developed later on?

Sanjay Sharma: For my family, I’m the first person who has delved into business for a startup. We are a family of people who have worked as engineers for doctors in various areas of organizations. I have gone against that grain and started something of my own.

Alejandro: Got it. Let’s talk about what happened. In your case, you were talking about how you went into engineering. So, obviously, you went to study there in Mumbai. Then after this, what happened? 

Sanjay Sharma: After doing my engineering, like many of the people that come from engineering colleges, either you go for further studies overseas, or you pick up a management degree. I decided to do the latter. So I went for my management education at Bangalore. I’ve been quite fortunate that I’ve been to two of the best institutions in India, one for engineering and the other for management. After that, I came and actually started working, which was what was expected by my family that I took on a job, a good stable job with a large bank, which is where I started my working career. I was in that stream for almost 25 years. I did various things in various banks for the large banks in India, ICICI Bank, and so on.

Alejandro: One of the biggest milestones or breakthroughs in your career was when the opportunity of Tamweel came knocking. What happened there?

Sanjay Sharma: Yes. That’s an interesting story. In fact, one of my ex-colleagues had made it to a position in a bank in UAE, and he said that he wanted me to come and set up a housing finance company. I’m a risk-taker, so I talked about it and said, “Why not?” I went to UAE and set up an office in Dhabi, and I was the first employee. We rated a housing finance company called Tamweel, which started off in 2003 or 2004. In seven years, it grew to become the largest housing finance company in the country. The interesting thing is that we did go for an IPO after that and that IPO was a billion rupees shared money that was being asked for. It got subscribed some 200 times, huge amounts of money, 200 billion rupees landed into our accounts. I remember that there was so much excitement around that because no one had seen that sort of number before. Those were great days that gave me a lot of confidence that if you set up and solve a big problem, then it can translate into tremendous value.

Alejandro: And this led you to see what the experience and the full cycle of a company looks like because it didn’t take you long after you left Tamweel to actually start your own thing. So tell us about this.

Sanjay Sharma: You’re absolutely right. I think Tamweel showed me that full cycle of how you set up a business, how you start from scratch, how you build a team, how you research into the product, and so on. I think that proved very useful. When I had to turn back to India, I came back in 2010 and looked around to do something which could have a social impact. I had done enough work on the commercial banking side, and I wanted to do something which could mean something to the less privileged world in India. That’s how the idea of high finance, that I founded, came about. The problem that we’re solving is that there are almost 67 million microenterprise owners who belong to the unorganized sector in India. These people, because they do not have formal documents that typically are needed by banks for lending, these organizations do not get any formal finance from the organized finance industry. The 67 million enterprises are a vaguely large number, and they are estimated that the unmet need is somewhere close to 2.4 trillion dollars. So, it’s a huge problem to solve. The way we’ve solved it in high finance is primarily by using a mix of data tools and data science machine learning models and a lot of escalating size that we get meeting customers, etc. How to build that customer insight is yet another story.

Alejandro: Here, you’re putting in a marriage, what is the financial services space with the technology space, so everything coming into one. Tell us about the way that you actually make money. What does the business model look like?

Sanjay Sharma: I think the use of data science in this respect, Alejandro, a lot of people think that the data tools are best suited for people who already have good financial services and to make those services faster and better and less hassle, which is true. But data science and new age tools can also be used to solve problems which earlier were constructed to be unsolvable. I think what we’ve done is decidedly that. Lending to this large organized mass of microenterprise customers was never possible unless you had good data tools to really look at how to drive them properly. What we have done is we have married technology to the financial understanding of these customers and to start with the starting point, which is to understand your customer very well. I think many people have talked about it. I think it is often used as a clique that you should understand your customer. But that can be the difference between having a successful startup and not a successful startup. In our case, an initial team of six people and I went to 350 microenterprise customers in five different cities in India, and we met them face to face and had a 45-minute face to face interview with each of them. A huge amount of work was done. We were almost three months on the road just to get to understand what is the problem with the customer? What are his challenges? How can we solve for it, and what will work and what will not work? I think that time invested the first four months that we invested in understanding the market, and the customer was worth its weight in gold. It has kept us on the right track and made sure that we don’t make mistakes. Then once you have that, then you can use technology to really solve the problem and get to an efficient model.

Alejandro: Yeah, because the problem that I see all the time that entrepreneurs make is that they are building based on assumptions rather than based on data, so they just go at it with something that they think is going to be nice. They just put a bunch of resources and money into engineering it. Then when they go to market, they realize that they got it wrong and that there are crickets. I think that what you’re pointing to is being able to get as many datapoints as possible from your customers so that you’re really driving every decision from what the market is asking. Is that right?

Sanjay Sharma: Certainly. Absolutely.

Alejandro: Got it. Obviously, in your case, the data and the use of the data was a big one. Tell us about this.

Sanjay Sharma: We started picking up data, and we built our initial models, which were based on clusters. We said that businesses, a person who is making shoes, is very similar to someone else who is also making shoes, and we understand the kind of mix of that business and see some markers in this business. For example, how many shoes are made per employee, or what are the total sales per employee in shoe manufacturing? We will start seeing patterns which will help us write data science models which could look at the industry type or the cluster and use some of the observed datapoints too. That was the starting hypothesis on which we based our initial models and started picking up a lot of data, a lot of information on customers. The difference is, unlike many developing markets, that data is available to [12:55]. These are customers who have never had credit at all. So these are new to credit and actually no data available on them, and you’ve got to create those datapoints or touchpoints yourself. I think the initial part of our journey was making sure that we created data, and we consumed data as we went along. The models have become better and better. Now, we have 300,000+ customers and growing. We are now large enough to at least start using data for machine learning models that can mean something and are highly efficient. I think the journey has been that you can always start in an industry and pick up small volumes of data and gradually grow it. Today, after six years, much of the data in this market envy us for the amount of data that we have and the machine learning models that we use. When CapitalG wanted to invest, they chose us, and we are the only finance company in India where CapitalG has invested. I once asked the investment director, “What is it that you saw in a company which is addressing a problem which is not one of those fancy high-tech customers. These are low-tech customers who are being addressed and through a matter that is partly field-driven, partly data-driven.” Interestingly, he told me, “The use of data that we see in your organization is phenomenal.” I think our use of data is very good and the tool surrounded data that is very interesting. They also mentioned that we are one of the organizations where we have had profitable business models. We started making our profits in the [14:58]. We’ve been making profits ever since. So, it’s important that you grow rapidly. We’ve grown at a pace where I think in the last five years, we’ve grown at a compounded growth of almost 100% to 125% per annum. So, you can grow, but you can also keep yourself profitable. I think these are two things that I would mention that use data, create data, data sets, and consumer data sets. And also keep an eye on staying profitable.

Alejandro: Very nice. You were alluding to it with CapitalG. To create a business like this it definitely is capital intensive. How much capital have you guys raised to date?

Sanjay Sharma: We have used a lot of debt also. Unlike many startups which only use equity, we have used a mix of equity and a fair amount of debt. Being in a financing industry, it’s easy for us to raise debt than many of the other industries. We overall have raised close to about 80 million dollars only. So, it’s not a very large raise, but from the debt side, we have almost raised 200 million dollars. I think that is roughly what we have raised around 300 million dollars. We have a book, also, which is close to that number 300-million-dollar book is worth data.

Alejandro: It’s interesting that combination and that balance of debt and equity. I’m wondering, and there are many people that are listening now, and they’re always used to the equity raises or maybe the ones that are at an earlier stage, the convertible note raises. When we’re talking about going further in that growth journey and balancing that equity with debt – let’s say like what you are alluding to? Can you walk us through that thinking or why it makes sense for a business like yours to have that split between equity and debt?

Sanjay Sharma: Sure. I think the simple reason is that in a lending business, the raw material is essentially money. You can think of funds as equity and debt, but ultimately, the raw material that we use or the product that we sell is money. You need to raise large pools of money, and if you only go with equity, you’ll only end up, obviously, diluting yourself many, many times. That’s one. The second is that by using a leverage of debt, you increase the return on equity for your investors, so once side is the profitability saying that you want to give more advance to your investors, and therefore, you want to take debt at a lower cost and generate profits on that. The next is that I think you don’t want to take so much equity and dilute yourself repeatedly. So it works on both accounts. I’ll tell you that often startups or new organizations, even in the finance world, do not think that they would find debt easily because they don’t have the track record with so many companies to look at. I can tell you that when we started, and we went to companies, the first thing that banks want is they want the founder to give a personal guarantee. That seems to be the Indian context. We were very clear that the founders would not give a personal guarantee because it’s a professional organization, and how can one person take the full load off a large debt? We stuck to that, and we said, “We will not give a personal guarantee, but we are willing to give you security; we are willing to abide by governance. Ultimately, we did get debt because they realized that it’s a professional organization doing well, and I think once you have made the first debt like that, then no one else asks you for a personal guarantee. So today, we started the organization taking a lot of debt. We’ve taken debt from almost 10 to 15 different debt-providing banks and finance companies. Not once have we given a personal guarantee. I just want to use that as an example that if you feel uncomfortable with something, and you stick to your ground, you will find solutions which work for both sides.

Alejandro: Absolutely, and while we’re talking about money, and then also the lending side, which is, obviously, the business here at stack, how would you say that COVID has perhaps changed the landscape for you guys?

Sanjay Sharma: That’s an excellent question about how the businesses are behaving. The difference is that while every credit-rating agency or the financial gurus, and you have a huge number of gurus coming out in the market, everyone seems to think that the small and microenterprises are going to be hit the hardest and there’s going to be a huge amount of default in this industry. There’s no denying that the micro and the small enterprises have been hit quite hard, but the difference is that the way you and the original customer is going to be important in this scenario, and we’re finding that while the expectation is that almost as far as some of the consulting journals that I read, they indicate that there could be 25% to 30% default in the micro and small enterprises. We are finding that we have still been able to manage to keep the total number of delays or delinquencies within 10%. In this scenario, it is extremely good because our normal status used to be 2%, and we believe that when COVID is over, we will not see our delinquency more than double that number, which is about 4%. So you can always manage your customers. The averages don’t count. You can say the average is going to be 20% delinquency, but if your customer is a customer who is going to pay, and you have done your work well, then you will be at 2% or 4% when the industry average is at 10% or 12%. We always say that we don’t worry about the averages. Let people predict doom and gloom, but if we know our customers, and we treat our customers well, and we are diligent in how to collect, we will see a good business. So we believe that we will ride this COVID storm, and we’ll come out of this storm wiser and definitely stronger. I think post-COVID, there’s going to be a lot of opportunity for us again, and I think we hope that we will be one of the companies that is there to make the most of that.

Alejandro: I’m sure that culture and the culture of your business is going to be a big driver of that. How many employees do you have now?

Sanjay Sharma: Culture, I think, is extremely important and something that we pay a lot of attention to. We have a team of 3,200 employees across the entire country, and we have 173 branches across India. I think we place a lot of focus on building a good, solid culture. We’ve been certified as a great place to work by the Great Place to Work Institute, ranked 14th in India, which is quite an achievement for a small organization, which is about six years old. I think it’s because we have created a strong team across our business. I think that beliefs that we are capable of the best of achievements and a team that wants to create a business that is admired.

Alejandro: Are there any particular principles or things that you and your people when it comes to culture. What would you say are the key pillars behind that solid structure around culture that you guys have created?

Sanjay Sharma: I think, like many organizations, we have our values that have been written, etc. I think we place a lot of focus on the vision statement that we have. Our vision is to be an admired leader in our market segment, and we focus on the fact that we don’t just want to be a leader; we want to be an admired organization. There are metrics for saying that we will be admired, and our investors feel this is one of the best companies to invest in. Our employees feel that this is the sort of an organization that I really want to work in. Customers give us thumbs-up. To give you a marker, I think I already mentioned about the fact that we are seen as a great place to work. On the investors, we have seen five rounds of investments. The first investor who came in is still investing into the company because they believe that we are delivering good value, and we will continue to deliver good value. Now, let me talk of the customer. The customer ratings, let me tell you that our scores when we speak to customers, is 70%, which I think is substantially a high number compared to many other companies in India. That’s because we have solved a big problem for our customer. We’ve treated our customer well, and we have kept in contact with the customer and helped them also. We have focused a lot and been good enough.

Alejandro: Talking about the customer, talking about the investors, and employees, obviously, there is, as you were saying, the vision and where things are heading. If I was to ask you Sanjay, imagine you go to sleep tonight, and you wake up in a world five years later – incredible snooze, imagine. And you wake up in a world where the vision is fully realized for the business. What does that world look like?

Sanjay Sharma: I think the vision, obviously, is that we should be – if I was on down the line, as you said, we should be an organization which should have probably a million customers with a book that would be counted as among the top five NAS companies in India. I’m not counting back, but there’s a very large number of Indian [26:16] that goes to 20,000 that we have seen in India. We want to be among the top five and with extremely good profit numbers, etc. Those are the business markers. But more important is that we should be seen in this industry as top leaders when it comes to microenterprises. If someone said, “Where would you find the best knowledge or best expertise on microenterprises?” It should be high finance. Similarly, if you speak to employees who have worked in high finance, I want them to say that they had a wonderful time and worked for an organization which is as caring and teaches them so much. I think both of those are markers that one would like to see. I’m sure that it will also be good to see our customers progress, so it would be good to see many of our customers beginning to become active parts of the financial economy and eCommerce space. So I think that would be a wonderful thing to have.

Read More: Ola Sars: From Helping Build A $3 Billion Startup To Creating One Of The Fastest Growing Companies In Music

Alejandro: We’ve talked about culture; we’ve talked about employees, too – over 3,000 employees is remarkable. One question that definitely comes to mind here is because I’m sure that there are a lot of people that are listening and wondering if after onboarding so many employees, you’ve definitely learned a lot around recruiting and getting the right people for the right reasons that are aligned with what you guys are building, so what do you look for in people when you’re looking to recruit more talent?

Sanjay Sharma: You hire for attitude, and that’s, without any doubts, very important. I think if the attitude is right and even if there’s a gap in the knowledge or experience in that area, you can always build on that. We have a very strong training faculty. We do a lot of training for our employees. Many of them come straight from graduate school, and they have to be trained into how to use the systems, how to use the processes. So training is definitely one piece, but when you’re looking at hiring, what we do is that we have used multiple sources of assessing a new hire. We have tried using psychometric tools; we’ve tried using data science tools; we’ve also spoken to our field branch managers to see how they rate people. And one thing that I can tell you is that you learn something from everyone. If you just thought that there’s no point in speaking to the field people, you realize that the field people will give you a very good insight into many of the new hires and whom to look for and what are the pitfalls to avoid? Data science tools can help you shift through a large number of prosumers, etc. You have to use multiple, or you can say that multiple listening posts can be the field branch manager in a particular town. It could be a training source who is in that same city. It could be data tools that have been designed, and finally, the interviews that we conduct. It’s good to use multiple sources. Obviously, look for a good attitude, and the training can follow.

Alejandro: Got it. Very cool. One question that I always ask the guests that come on the show is if you had the opportunity to go back in time, Sanjay. I mean, obviously, for you, the entrepreneurial journey has been remarkable and full of ups and full of downs because there’s no such thing as a straight line, but obviously full of lessons too. If you had that opportunity to go back in time and have a chance to speak with your younger self, with that younger Sanjay, and you were able to give that younger Sanjay one piece of advice before launching a business, what would it be and why given what you know now.

Sanjay Sharma: I come from a family of professionals who had never been in business, and the first one who has set up a business and run a business. One thing I realize is that I wish I had started this earlier. Often, we believe that maybe we are not sure we’ll do well or not, but many of us who do so well in service or in a job can easily do that for ourselves. If I was to give advice to my younger self, I would have said to start getting into a business ten years earlier rather than later. You can always learn as you go along. I don’t see a tremendous merit in saying, “Let me first gain experience, and when I’m 30 or 40 years old, then I will be ready for business.” There are lots of young people who have set up very good businesses, so I think, start early. Once you have the confidence that you can execute well, then believe in yourself because you can always find solutions to many problems by using a good consistent method. Problems will be there. As people are employed in jobs, we solve problems all the time, so why worry about the fact that you’ll be on your own and you’ll have to solve your own problems. Things fall into place. You have to take those chances. And, yes, there could be failures, but if you have confidence in yourself and become something and start something afresh. And you’ve got to be patient; you’ve got to be consistent. You can’t let go early. You’ve got to have belief in yourself and stand by it. In our case, we have stood by when we started. Everyone in the finance industry said, “You’re going to lose a lot of money if you look at an unorganized sector for lending.” And people said, “People will take money from you. They’ll run away, and you’ll not be able to chase them because, in India, you don’t have a social security number, etc.” We had believed that we would do fine, so the founding team set about setting up the processes to take away those risks. I think in six years’ time, I think we’ve had a wonderful experience. We’ve done well, and we’ve built a good business. 

Alejandro: Very powerful, Sanjay. For the folks that are listening, what is the best way for them to reach out and say hi?

Sanjay Sharma: I’m not very active on most of the social media because there’s so much to be done in the company, but my email can be a good way of reaching me. I do respond to every email that comes in. I think my email is [email protected] – that is the best way to catch me. You can write to me on LinkedIn, but I normally would respond after four or five days.

Alejandro: Fantastic. Well, Sanjay, thank you so much for being on the DealMakers show today.

Sanjay Sharma: Thank you. It was great speaking to you, Alejandro.


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