Surety Bonds - The next big opportunity in the Indian Fintech space

NEW DELHI, Jan. 17, 2025 /PRNewswire/ -- Transjovan Capital, a premier global M&A advisory firm with offices in New Delhi, Los Angeles, Sydney, and Dubai has shared its outlook on the next big investable segment in the Indian Fintech space, that is, Surety bonds.

India is on a path to supercharged economic growth with substantial emphasis on developing the infrastructure sectors – roads & highways, power, railways, and water management. The Government of India has planned an investment of USD 1.4 Tn over 5 years on infrastructure projects as per the National Infrastructure Pipeline.

Given the long-term nature of these projects, contractors are required to furnish guarantees to the contract awarding bodies to mitigate the risks of non-delivery and quality as per the pre-agreed terms.

Until 2022, bank guarantees, which have limited supply, were the only instruments to service the demand for guarantees in India. Furthermore, they use up a significant portion of the working capital, given they require huge cash margins and collaterals to be placed with the banks. Even considering banks non-fund credit CAGR of 22.7%, there will still be a significant deficit of non-fund credit in India over the next 3-5 years as India continues to grow at a phenomenal rate.

Bank guarantees are equipped to meet only 40% of India's demand over the next 3-5 years. This creates a shortfall in the system that poses a significant bottleneck to infrastructure development in core sectors like Construction (Road & Railways), Energy, Aviation, and Telecom.

Surety bonds were introduced in the Budget of 2022 as a substitute for bank guarantees. Issued by insurance companies, these bonds fall under the purview of the Insurance Regulatory and Development Authority of India (IRDAI) and are charged a premium as a percentage of the amount guaranteed. Importantly, surety bonds generally do not require any cash margins or collaterals.

While still nascent in India, surety bonds are widely used as guarantees globally. The penetration of Surety bonds is higher than BGs in most developed economies. In fact, it is no coincidence that the top 40 countries in the rankings for 'Ease of Doing business' have significantly higher rates of Surety Bonds acceptance. The global industry size of surety bonds is estimated at USD 21 Bn in gross written premiums (GWP), with USA at USD 10 Bn and Europe at USD 5 Bn, respectively.

In spite of being one of the largest economies in the world, India is highly underpenetrated with only around USD 10 Mn GWP underwritten to date (almost 3 years since the first notification of acceptance). That is where the opportunity lies.

Gaurav Asthana, Managing Partner at Transjovan Capital, opines, "Surety bonds have historically shown the lowest loss ratios in the Insurance sector, averaging to only 18-25% globally in comparison to other insurance LOBs where loss ratios have touched high 90%s. We are optimistic about the growth potential of surety bonds in India, fuelled by its huge infrastructure requirements. It is currently a white space opportunity and I won't be surprised if a unicorn emerges from this category in the next 3 years."

Surety bonds are an insurance product that rely heavily on a robust underwriting ecosystem. This is where the role of a surety bond specialist provider (broker, MGA, surety insurer) has become highly critical in bringing together different players within the ecosystem - reinsurers, insurance companies and clients.

Today, there are only a few such surety providers in India. For example, Surety Seven, a technology provider for Surety bonds (non-fund credit) assessment, holds a lion's share of the market catering to B2B infrastructure clients, while a few others focus on B2C rental bonds or SME working capital financing bonds. Surety Seven has powered Surety bonds through its technology working along with multiple surety insurers and brokers in India.

Pranjal Aneja, founder of Surety Seven notes, "We have seen this category built from scratch in India and have developed a robust underwriting technology platform to address the prevailing need gap. There is a huge dearth of non-fund credit in India, Surety Bonds are the only mechanism to fill that void." He further states "Technology has been the cornerstone of all of India's successes in the recent times, why should Surety market be any different? The current pie is large enough for multiple providers like surety insurers, brokers etc. to peacefully coexist. This market will grow about 100 times in the next 18-24 months."

Transjovan Capital is assisting Surety Seven in raising growth capital.

The future of the surety bond industry in India looks incredibly promising with a potential to exceed USD 7-8 Bn in GWP underwriting within the next 5 years.

About Surety Seven

Surety Seven is a technology provider for Surety bond assessment, underwriting & facilitation. Surety Seven's proprietary technology streamlines the Surety Bond process enabling all stakeholders like reinsurers, insurers, intermediaries, & clients (contractors large and SME). Surety Seven since its inception in 2023 has powered through its technology over INR 3600 crores of Surety bonds in India.

Company's promoters, Pranjal Aneja and Uditt Lamba, are Computer Engineers from Delhi Technological University (formerly Delhi College of Engineering) and bring in a combined 15 years of experience in the software industry. Pranjal Aneja's prior experience in building Surety Bonds programs as a financial consultant in the EU has guided the company's growth over the last 2 years.

The firm is a leader in powering, through its technology, Surety Bonds and associated credit insurance risks in India and for Indian interest abroad. In the short span of 1.5 years, Surety Seven has powered more than 50% of India's Surety industry for sectors like Construction (Railways & Roads), Energy, Telecom, Aviation and more.

For any business queries related to Surety Seven, write to: [email protected]. 

About Transjovan Capital

Transjovan Capital is a premier global M&A advisory firm with offices in New Delhi, Los Angeles, Sydney, and Dubai. Since its inception in 2011, the firm has advised 200+ clientele on cumulative transactions worth over USD 7 Bn, spread across 10+ countries globally.

It is focused on providing advisory services to clients pertaining to Mergers & Acquisitions (M&A), Equity Capital-raising, Corporate Strategy and Board Advisory.

The firm is sector agnostic and has worked across traditional sectors (Industrials, Infrastructure, Consumer, Chemicals, Education, Engineering, Logistics, Media, Manufacturing, and Financial Services) as well as new-age sectors (Enterprise SaaS, Fintech, Deeptech, AI, D2C, Agritech, IoT, Healthtech, Logistic tech, and Edtech).

For any business queries related to Transjovan Capital, write to: [email protected]. 

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