RBI-registered NBFC (non-banking finance company), Lendingkart Finance Limited disburses loans for working capital requirements to MSMEs, relying heavily on analytics and online data.
The company which is part of Lendingkart Group, sees immense opportunity in the space. At present, the company has a significant disbursal footprint already. Harshvardhan Lunia, co-founder and CEO, discusses the sector position and company’s plans with Pankaj Joshi.
Can you describe your current position?
We started operations in 2014, working with nationalised banks and large NBFCs who lend to us on our books (Lendingkart Finance). We have disbursed over 11,000 loans across 650 cities. Currently, our staff strength is 350 and our ecosystem includes over a hundred channel partners like Flipkart, Voonik, Snapdeal, PayTm, Unicommerce and others. Channel partners have a host of smaller retail merchants that work with them on a regular basis and associating with them gives us access to their retailer base. We assist this retail base with their working capital requirements.
The recent developments like digitisation, wallets, P2P etc. Which would have a far-reaching effect on alternative lending business?
Digitisation is helping the fintech ecosystem create a humungous repository of digital footprints. Apart from platforms like BHIM, the P2P and other fintech or payment solution businesses are digitising data massively. This in turn helps alternative lenders in assessing creditworthiness of borrowers in a more efficient manner. The demonetisation drive has also created a host of opportunities for the alternative lending space.
As per the MSME ministry, this sector consists of 51 million units almost 93 per cent of them unregistered. Small traders and businesses, particularly in the rural and semi-urban parts of India where modern banking is yet to make inroads, now have better exposure to organised finance and banking servicees.
With demonetisation, existing sources of credit from trade channels, money lenders, and friends and family get crunched. So, SMEs will look up to formal borrowing channels like banks, NBFCs and digital lenders to meet their credit needs. While cash-reliant businesses are hit, working capital requirement is expected to increase in medium to long term as conditions stabilise and previously cash-dependent MSMEs will seek alternative sources of credit.
Digital lenders like us expect a surge in demand as MSMEs move towards the formal credit economy. The inherent limitation of traditional financiers like banks in assessing creditworthiness without adequate credit history and credit score, will further strengthen our stand. With majority of the population getting bank accounts, gaining access to financial products and rising levels of financial literacy, our already large addressable market gets much wider.
What kind of an ecosystem do you see evolving that will complement the current banking system in terms of reach, eligibility criteria, processes etc?
While a good part of the country is geographically covered by banks or formalised institutions, as per the Asian Development Bank’s estimate, over 35 per cent of SMEs do not have access to these. Here a platform like Lendingkart can make a difference, especially because of our digital mode of operation. With physical presence in three cities, we have currently given out working capital loans in over 650 cities. Thus, making the loan process speedy and convenient, without human bias and minimum human intervention. The ongoing NPA stress in the public sector banks inhibits their appetite to lend (especially in rural areas), thereby providing online lenders like us an opportunity.
What is the role of the NBFC (Lendingkart Finance) and the amount of risk that Lendingkart Group would tend to carry on its books?
Lendingkart Finance Limited does a thorough evaluation of borrower’s credit-worthiness by assessing over 4,000 traditional and alternative data points as well as diligent background checks. After all evaluation process is completed, it disburses loan amount to the deserving borrower within 72 hours from the time of application. We receive about 6,000 complete applications per month and conversion rate is 25 per cent.
The risk of repayment irregularities and defaults is inevitable in our business ecosystem. However, firstly our small ticket size and short tenure reduces the possibility of default. Our structured approach along with a robust in-house technology and data science and analytics helps us identify early signals for any probable default. We have developed tools based on big data analytics and machine learning algorithm to facilitate lenders to evaluate a client’s business.
There is enough data available from various sources to determine a customer’s intent to pay back a loan, quality and financial health of his business, ability to survive competition etc. Over 4,000 data variables are assessed to determine the financial health, comparative market performance, social reliability and compliance to statutory requirements to determine the credit worthiness of borrowers. With this processing at a nominal fee, Lendingkart Finance determines the interest rate. In case of any delinquency, our risk and collection team ensures those are dealt with in the most efficient manner.
What are the visible regulatory constraints and how do you look at government in terms of expectations?
For a financially inclusive society, we need regulations and a structured policy that gives digital lenders a level playing field. Digital lending ecosystem today lacks a regulatory framework, specifically P2P and marketing operations. We need the RBI to formulate specific policies enabling transparent functioning, like lending companies should disclose facts that help verify borrowers. They should also clarify the collection procedures by putting up this information on their websites.
What according to you is the size of the total SME borrower market in India and what percentage is under-served?
According to Greyhound Group, over 50 million SMEs are operational in India and their working capital needs are USD 150 billion. Alternative lending platforms like ours are beginning to plug this gap. Through our multiple interactions with SMEs, we realised that their biggest pain point is availability of capital. We tried to build a product that would not only enable easy borrower access but also understand their daily operational need and customise our offerings accordingly. Every step from application to disbursement has been made easier and faster.
Our pan India target audience includes anyone who needs working capital loan and has internet access on his or her smartphone or computer. It can include e-commerce players and companies that supply goods to large corporations as well as offline retailers and service providers. The average ticket size is Rs 5-6 lakh.
How do you define your growth targets over the next 3-4 years?
Today, the top layers in any industry chain with borrowing power, borrow not only for themselves but also to fund layers below them. Our long-term vision is to replace distributor credit or funding by friends and family by offering relatively economical source of funds at the click of a button. The larger objective is to strengthen our technology platform and enhance our mobile capabilities. By the end of FY2018, Lendingkart Finance’s vision is to expand its geographic footprint to over 700 towns and cities.