How Hardika Shah of Kinara is creating social capital

An understanding of entrepreneurs overcoming the odds in gaining access to capital is part of Hardika Shah’s inheritance. As a child growing up in 1980s Mumbai, the CEO and founder of non-banking financial company (NBFC) Kinara Capital, witnessed her mother running a provision store on the ground floor of a building where her parents had an apartment. In pre-liberalisation India, customers were often short of cash at the end of the month, which meant her mother would extend them credit while herself being perpetually short of cash to expand. “Every one (of her customers) was operating salary cheque-to-salary cheque, so she always had this working capital gap,” recalls Shah. But every few weeks, “this random guy would come with a paper bag with cash. There was this unofficial credit community. That was how you got working capital through the Gujarati community.”

It is perhaps not a coincidence that Shah would eventually start Kinara Capital in 2011, focusing on unsecured lending to small business owners similarly starved of working capital, after a successful stint in consulting. In 1988, Shah had moved to the US for undergraduate studies and then joined Accenture, where she worked for two decades. Shah’s frenetic travel schedule meant that over a decade had passed before she returned to India in 2003. When she visited India that year to set up an office for a client, Microsoft, in Hyderabad, she realised that she had missed witnessing the liberalisation of India’s economy by then finance minister Manmohan Singh and his successors. Shah felt like Rip van Winkle. “You end up in a time warp,” says Shah, 53. But as so often in India, she also noticed the growing disparities between “entitled engineers” and the rest: “You realise so many are left behind.”

Moved by the experience of watching India’s rapid growth phase unfold but also conscious that this wasn’t benefiting everyone—she was particularly concerned about the unequal lack of access to credit—Shah returned home to the Bay Area. The following year, she started mentoring social entrepreneurs studying at Santa Clara University and at Stanford University, both in California. In 2007, she began an executive MBA while still working for Accenture, shuttling between classes at New York’s Columbia University and the University of California Haas business school campus in Berkeley.

Shah had juggled academics and work before in Mumbai, receiving internships as a market researcher and later as a font designer while still in high school, earnings she put away towards the exorbitant costs of higher education in the US. After she finished school in Mumbai, in an India before large student loans, Shah received an early lesson in being unable to raise credit. Her parents sold their apartment in Mumbai so that she could study computer science and liberal arts at Knox College in Illinois, US. While she was in college, the rupee was substantially devalued in 1989 and her parents said they would be unable to continue to fund her education. Shah received permission to work off campus and spent weekends working as a receptionist in a nursing home and got jobs during summer holidays as well.

Completing her MBA in 2009, Shah took a couple of months off and again visited India. In Mumbai and Chennai, she met anyone who would give her the time to talk about finance directed at MSMEs (micro, small and medium enterprises). She found credit in India to be characterised by a strange dichotomy. Banks loaned money to those with land or other collateral while others relied on relationships or chit funds to raise cash. “I looked at it and thought, ‘Most of our nation doesn’t have land, capital or property.’ I saw this missing middle beyond micro finance.” On her return to the US, she raised $180,000 in seed capital primarily from her classmates in the MBA programme and Accenture colleagues, and Kinara Capital was born.

Since Shah founded Kinara Capital and moved to Bengaluru in 2011, it has made more than 100,000 loans to MSMEs, a total of ₹6,500 crore. Despite plenty of turbulence for the NBFC sector in the years after Kinara was founded, assets under management for the NBFC grew 150% between fiscal 2022 and the quarter ended December 2023. Assets under management as of February 2024 was ₹3,113 crore. The company helps small firms in businesses ranging from provisions stores to medical shops, from auto components to cloud kitchens.

Women-owned MSMEs account for almost 12% of the customer portfolio. Kinara’s five-year-old HerVikas programme for women entrepreneurs has issued more than ₹700 crore in business loans. What HerVikas does is give women with businesses extended grace periods before their EMIs kick in. It offers them a 60-day repayment holiday, a 1% discount on the interest rates the company charges and lower loan processing charges.

The percentage of women among its customers is less than one might expect, but Shah is realistic about the fact that the prejudices women face working outside their homes is deep-rooted in India, which has one of the lowest female participation rates in the workforce in the world. “If you don’t support your daughter working outside the home or don’t like her working, I can’t change that,” she says matter-of-factly. Prejudice against women extends to the venture capital industry: Recent data from Tracxn shows that just 7% of venture capital funding went to startup companies in India with female founders in 2023.

Kinara is a model for women-led organisations with most of the senior positions in the company filled by women and considerable LGBTQ+ representation in its ranks. At its elegant Bengaluru headquarters in Indiranagar, a feminine touch is in evidence from the quirky mugs to Shah’s brightly decorated office.

Shah, wearing colourful costume jewellery the day we meet, reminds me of a younger Indra Nooyi, who I interviewed decades ago when she was a senior executive with ABB in Connecticut. For my visit, Shah and her colleagues have ordered a daunting range of pastry from a coffee shop and she cuts herself a small wedge of a Danish pastry with hemp, which I joke fits neatly with her Bay area roots.

Shah laughs easily, which is perhaps just as well as the founding of Kinara Capital coincided with a decade or so of turbulence for the small businesses Kinara Capital seeks to serve as well as the NBFC sector. It had been bookended by the slowing of credit growth in the aftermath of the global financial crisis, periodic RBI-led concerns about lending by NBFCs in the aftermath of the collapse of IL&FS in 2018, and by RBI concerns about unsecured lending and the rapid growth of retail loans. Shah insists that RBI’s scrutiny has not directly affected Kinara, which has been profitable for almost a decade. Even ahead of the RBI’s recent moves, funding for fintechs and indeed startups generally had come down quite perceptibly. Fintech funding in India was $2 billion in 2023, less than a quarter of the $8.4 billion it was in 2021, according to Tracxn.

In a sign of confidence from investors, Kinara marked women’s day on 8 March with a commitment to raise allocations to the HerVikas programme by ₹500 crore, targeting ₹1,200 crore disbursements to women entrepreneurs by FY2025. But the RBI’s concern about fintechs is unlikely to go away. Kinara’s model of unsecured lending has tech as its solid foundation: the UPI backbone makes it relatively easy to check that a business has the revenues it claims to have. Once all the checks, physical and digital, are done, tech-enabled work processes means loan origination to disbursement takes a mere one and a half days. She underlines that in India this hybrid model is essential. “The cut, copy, paste (of many Indian startups, using models developed in the West) may not work for India,” she says.

She believes the “speedbumps” the RBI has erected to slow the runaway retail credit growth are not unreasonable but worries that her client base of micro MSMEs has been at the receiving end of a pummelling as a result of ever-changing government policy. 2016’s demonetisation, which disproportionately hurt small businesses who were heavily reliant on cash transactions, was followed by a goods and services tax in July 2017. Then, the collapse of IL&FS put NBFCs under scrutiny. Small businesses remain resilient despite the myriad challenges, from the perennial risk of power cuts to changes in the prices of imported inputs. “The small business owner is saying ‘I am trying to put one foot down after another and survive’. They are pressured from all sides. There is no pressure valve,” she says.

With 133 branches and 2,000 employees in six states, Kinara can afford to “be gentle” when it comes to collection, she says. If a customer misses two payments, a recovery process is initiated. But, its UPI-backed models allow it to understand, for instance, when in the month a small business’ payments come in and therefore decide when Kinara can afford to be lenient. Having an adequate staff for follow-up means Kinara gets to know if the owner of their mostly sole proprietor businesses has an emergency. Though Kinara’s unsecured lending model targets the smallest of businesses, delinquencies are 3% and net non-performing loans are about 2%. On a prorated basis, its average final interest rate is about 13%.

While Shah remains resolutely confident about Kinara Capital’s ability to grow, she is concerned that the unequal playing field that brought her back to India in 2011 to start the company is still a fixture of doing business here. “The entrepreneurial energy we have as a nation is tamped down. India should be flying high,” she says. The small business owner doesn’t know “literally what is coming around the corner”. Shah’s argument for a large-heartedness on the part of government institutions towards small businesses, which are important job creators, is valid. India needs a new compact of compassionate capitalism—in the government’s dealings with the smallest of our capitalists, the men and women running our micro enterprises.

Rahul Jacob covered India’s economic reforms in the 1990s for Fortune and Time and is a Mint columnist.