Alphabet's CapitalG-backed Aye Finance, a leading lender to India's micro, small, and medium enterprises (MSMEs), has filed for an initial public offering (IPO) to raise $171 million. The IPO comprises a fresh share issue of $104 million and a secondary sale of $67 million by existing investors.

The proceeds from the IPO will be used to expand Aye Finance's loan portfolio and strengthen its capital base. The lender, valued at around $400 million, operates 499 branches across 22 Indian states, with $588 million in assets under management as of September 2024. Aye Finance's loan portfolio is focused on providing critical financial access to micro-enterprises, which are typically excluded from traditional banking systems.

Aye Finance's business model is built around extending business loans, including mortgage, hypothecation, and term credit, to unorganized sector businesses with an average loan size of $1,800. The startup, founded in 2014, leverages proprietary technology and analytics to assess creditworthiness. This approach has enabled Aye Finance to reach a large number of underserved small businesses in India.

In fiscal 2024, Aye Finance's revenues reached $122.5 million. However, the lender's non-performing assets increased from 2.74% to 3.29% during the same period. Despite this, Aye Finance has raised more than $160 million to date from investors, including Elevation Capital and British International Investment, in addition to Alphabet's CapitalG.

The IPO filing by Aye Finance caps a record year for Indian startup IPOs. Financial services startup MobiKwik is also set to go public soon. Last month, Swiggy's IPO was the largest among tech startups globally this year. The IPO also comes at a critical moment for India's financial services sector, which is grappling with a substantial credit gap estimated at over $650 billion in the MSME segment.

The MSME segment contributes approximately 30% of India's GDP, making it a vital component of the country's economy. However, the sector faces significant challenges in accessing credit from traditional banking channels. Aye Finance's IPO is expected to help address this credit gap and provide much-needed capital to India's small businesses.

Axis Capital, IIFL Capital, JM Financial, and Nuvama Wealth Management are running the books of Aye Finance. Pricing details for the IPO remain undisclosed. The successful listing of Aye Finance's IPO is expected to pave the way for other Indian startups in the fintech space to go public.

In conclusion, Aye Finance's IPO filing marks a significant milestone for India's fintech sector and the country's MSME segment. The successful listing of the IPO will not only provide a boost to Aye Finance's business but also help address the massive credit gap in the MSME sector, ultimately contributing to India's economic growth.