1. Executive Overview

Aye Finance Limited is a Non-Banking Financial Company – Middle Layer (NBFC-ML) focused on providing loans to underserved micro and small businesses (MSMEs) in India. Since starting operations in 2015, the company offers secured and unsecured small-ticket loans for working capital and business expansion across sectors like manufacturing, trading, services, and agriculture.

As of September 2025, Aye Finance has an AUM of ₹60,276 million, with strong growth over recent years. It serves over 5.8 lakh customers through 568 branches across 18 states and 3 union territories. With a small average loan size (~₹0.18 million), the company ensures better risk diversification. Its key strengths include wide geographic presence, fast growth among peers, and a unique “phygital” model combined with cluster-based lending, which helps maintain strong customer retention and stable asset quality.

2. Business Model and Revenue Streams

Aye Finance employs a localized, direct-to-customer "phygital" business model, entirely eliminating reliance on Direct Selling Agents (DSAs). Revenue is driven by high-yielding lending products originated via a massive in-house workforce of over 3,905 loan officers and 1,019 relationship officers.

• Geographic Breakdown: The portfolio is systematically diversified across four zones: North (34.80%), East (27.79%), West (22.73%), and South (14.69%) as of H1 FY26. The top five states (Bihar, Uttar Pradesh, Rajasthan, Madhya Pradesh, and Maharashtra) collectively contribute 57.00% to the overall AUM.
• Pricing Strategy & Spreads: The company commands significant pricing power, generating an annualized Yield of 25.39% for H1 FY26 (down from 26.53% in FY25) while maintaining an Average Cost of Borrowing of 11.64%. This spread allows for an exceptionally strong Net Interest Margin (NIM) of 14.12% in H1 FY26 (15.31% in FY25).
• Operational Metrics: The company exhibits strong unit economics. AUM per Branch stands at ₹106.12 million, and the Cost to Income Ratio has fundamentally improved, dropping from 66.03% in FY23 to 52.62% in H1 FY26. Furthermore, Repeat Retention Rate sits at a healthy 41.16% for H1 FY26, significantly lowering customer acquisition costs (CAC).

3. Products and Service Portfolio

Aye Finance provides a comprehensive suite of secured, partly secured, and unsecured credit facilities tailored to businesses with annual turnovers between ₹2.00 million and ₹10.00 million.

• Secured Hypothecation Loans (Primary Revenue Driver): Accounts for 41.01% of AUM (₹24,719.26 million). Fully secured by hypothecation of working assets, machinery, and finished goods. Offers an ATS of ₹0.15 million over ~29 months, yielding up to 32% p.a..
• Unsecured Hypothecation Loans: Contributes 37.97% to AUM (₹22,888.82 million). Partly secured against hypothecation but where asset value cannot fully cover the loan. Yields up to 32% p.a. with an ATS of ₹0.17 million over ~31 months.
• Mortgage Loans (Growth Driver): Accounts for 19.28% of AUM (₹11,620.40 million). Fully secured against property. Targeted for up-selling, it offers larger ticket sizes (ATS ₹0.41 million), longer tenors (~75 months), and competitive pricing up to 26% p.a..
• 'Saral' Property Loans: Niche product comprising 1.74% of AUM. Tailored for clients with unclear property titles; ATS ₹0.19 million, yielding up to 28% p.a..
• Emerging Digital/Ecosystem Products: Includes SwitchPe, a B2B supply chain finance app offering unsecured credit lines with 14-day interest-free periods to retailers/distributors, and Shakti Loans, specifically targeting women micro-entrepreneurs.

Product-Wise AUM Breakdown (FY23 - H1 FY26)

4. Key Business Strengths

• Large Market Opportunity: Targets India’s huge MSME credit gap (~₹34 trillion), a segment largely ignored by banks.
• Unique Underwriting Model: Uses a “business cluster” approach instead of traditional documents to assess borrowers.
• Strong Risk Diversification: Well spread across states, reducing risk from regional issues.
• In-House Sourcing: No agents used, ensuring better loan quality and higher customer retention (~41%).
• Good Asset Quality: Strong collection system and tech use keep bad loans low (Stage 2 ~1.65%).
• Diversified Funding: Supported by 80+ lenders with strong capital position (CRAR ~32%), enabling lower borrowing costs.

5. Future Growth Strategy

• Increase Branch Productivity: Focus on growing loan book in existing branches instead of rapid expansion.
• Expand Mortgage Loans: Increase higher-value, long-term loans by cross-selling to existing customers.
• Use AI & Automation: Improve efficiency and reduce costs using AI, RPA, and automated loan processing.
• Lower Cost of Funds: Shift towards better lenders and cheaper funding sources to maintain strong margins.