EV financing is a hardcore collection business – Pankaj Gupta, Mufin Green Finance

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Mufin Green Finance (MGF) is India’s first listed NBFC dedicated to green financing. The company started EV financing with e-rickshaws in 2016 and has since financed EVs worth more than INR 300 crore across 14 states. They financed 20,000+ vehicles in FY22-23.

In this chat with Pankaj Gupta – CEO at Mufin Green Finance, we discover more about their work and outlook for electric vehicle financing in India.

Please give us an overview of the scale of operations at Mufin Green Finance.

We started EV financing in 2016. Overall, we have financed EVs worth INR 300 crore across 14 states. The e-rickshaw domain has been the major segment we are catering to, and we hold a market share of 5% in E-rickshaw financing. Our current B2C e-rickshaw portfolio is INR 175 crores.

In addition, we provide financing for electric 2W, autos, commercial vehicles and cars. In terms of ecosystem creation, we are catering to financing EV charging and swapping infrastructure financing requirements. We are also looking at starting financing for buses and commercial trucks.

We do both sides of the business, B2B and B2C. B2C remains 75% of our portfolio, and the rest are B2B assets. On the B2B side, having financed nearly 4000 vehicles, we currently have a book size of around INR 80 crores. We are working with lead operators like Zypp Electric, ALT Mobility, Lightning Logistics, Magenta and Shadow Fax to name some. In essence, we currently stand at a net worth of around $20 million and have assets under management worth $35 million.

What kind of numbers are you targeting for this FY?

Around 5 lakh e-rickshaws will be financed in India this FY. We estimate to be financing approximately 30,000 of them. We are targeting to reach a base size of around close to 50,000 vehicles (all categories) this financial year. The target is to grow the portfolio size to almost INR 750 crores and add INR 250 crores to the B2B side of the business.

We have raised $7 million in green bonds from Symbiotics Investments and picked INR 45 crores (USD 6.5M) funding from Incofin India. We are set to raise more debt and capital to meet our targets.

On the B2B side, what criteria do you have for financing EV fleet operations?

In the B2B space, our customer is a start-up or a fleet operator who generally wants to execute an asset-light model through leasing. Financing companies like ours hold a minority stake in the leasing entity. We look at multiple levels of underwriting in these cases. We look at their unit economics. We try to understand the value we can add. If they’re running a 200-vehicle fleet today and we give them another 50 vehicles, what would be the addition to their run, in how much time can they start utilising the new vehicles, and how will the infusion of new vehicles improve their earnings?

Secondly, every vehicle we finance is tracked by an IoT device. This gives us a sense of utilization and more comfort about the B2B player. And as the comfort grows, the relationship grows. In addition, we assess the vehicles they are using, their build quality and whether they be able to meet the use case requirement.

On the B2C side, how do you manage evaluation and risk?

84% of our customers do not have a credit score. Traditionally, people with no formal credit profile would go to money lenders who lend them money at an exorbitant interest, up to 60%. We intend to give them finance at an optimised cost. We have offered E-rickshaws loans at as low as 9.9% and for L5 vehicles between 14-16% while the industry range is 22-26%.

Our process of selection is 65% focused on parameters of the right product, territory and prior use cases, while only 35% on customer profile. We majorly rely on tele-verification and field verification. We add guarantors and co-applicants to the loan application, which gives us more comfort.

Our strength is enabling capital to customers, but we would not be able to get into the business of selling repossessed vehicles. So, there is also a buy-back clause with the dealer. If an asset is repossessed by us, he will support us in terms of selling that vehicle. If he is unable to sell it in a stipulated timeframe, then he will buy that asset from us at a pre-agreed price.

In addition, there is a subvention pool that we take from our dealers for each case we finance. It helps us to take care of any kind of write-offs. However, we are not utilising those risk pools or putting those into our book size. If we did, we would have almost zero NPA.

EV financing is a hardcore collection business. In our experience, if the product is right, the customer does not mind paying back. Success depends on how efficiently you run your collection process, especially in commercial vehicle financing. Efficient collection processes are the drivers for success for us and the reason we have been able to keep our NPA less than 2%.

Once the dealer buys back the repossessed vehicle, what is the next course of action, given the state of the battery plays a large part in asset valuation?

The dealer has the capability to restore the battery. If it is a lithium-ion battery, he can get the pack balancing done. If it is a lead-acid vehicle, he can sell the old battery and put in a new battery. Our aim is to recover our principal outstanding. So, if the dealer wants to transfer the loan to another customer, we support that by refinancing the used vehicle at the loan value. The dealer refurbishes the vehicle, and he can pitch it to a new customer on account of a lower down payment and smaller EMIs than the new vehicle and immediate availability. The customer might just need to top up the battery after a certain time. We can enable the finance to these customers.

Also Read: SIDBI provides INR 10cr. term loan to Mufin Green Finance to promote EV financing in India