Getting a loan in India is tedious and time-consuming as regulations demand physical documents for identification proof, pay slips, verification of signatures as well as in-person verification and physical inspection of properties.
Besides, owing to lack of relevant financial data, the risk of lending to millions of undocumented and unverifiable Indians is very high even though they satisfy the income sufficiency test.
“Credit availability is not an issue in the country. However, owing to lack of financial data and credit history, it makes difficult for financial institutions such as banks and NBFCs to perform risk assessments,” said Rajesh Gupta, Founder and CEO, Cash Suvidha.
He faced a similar situation when banks denied him business loans. He saw a huge gap in the lending industry and thought of exploring the lending market where there is a huge credit crunch.
In April 2016, Gupta launched an algorithm-based secure lending system Cash Suvidha to provide business loans to SMEs, MSMEs, women entrepreneurs and personal loans to individuals.
The algorithm assess the borrower, checks the life of their businesses and makes sure that business have healthy banking and CIBIL.
Besides, it also has in-built ‘Suvidha Social Score’, which assesses creditworthiness of borrowers using social media portal, checks educational & professional backgrounds, tracks lifestyle spends, payments behavior, and spending patterns.
The company’s rate of interest varies from 19 per cent to 28 per cent depending upon the profile of the borrower. It claims to provide loans within 48 hrs.
Cash Suvidha has shown an exceptionally fast growth in less than two years.
Cash Suvidha has so far raised an institutional debt of $2.7 million from various financial institutions and claims to achieve profitability.
In less than two years, it claims to have disbursed a total amount of 102 crore to over 27,000 borrowers, with an average loan size of Rs 3 lakh.
It is targeting to provide Rs 100 crore loan by the next quarter. By end of fiscal year 2018, the company aims at targeting over 3 lakh borrowers across India.
The online lending platform focuses on both urban and rural India, where the latter gets between 10-15 per cent of loan contribution from the company. It has already facilitated to the credit requirement of over 15000 people in Rural India. It has 12 branches in rural areas of UP, Uttarakhand and Bihar.
The company aims to facilitate further lending to small and medium enterprises (SMEs) and personal loans in Delhi-NCR, Bangalore, Pune, Hyderabad and Mumbai.
Gupta says that old and new government policies put a significant effect on the lending industry.
“Besides, understanding the needs of borrowers and knowing their credibility is among the other challenges that we face in this industry. Being a startup, we also faced the major challenge of debt raising, credit underwriting, making alliances and tie-ups. Setting up our in-house technology systems was also an interesting challenge which we have overcome successfully so far.”
However, companies still see a large opportunity in the sector as they continue to address the current issues.
According to the Reserve Bank of India (RBI), NBFC loans have grown at 16.6 percent, compared to 8.8 percent for the banking sector this year.
The RBI’s Financial Stability Report (December 2016) showed a 33.1 percent increase in loan and advances given by deposit-taking NBFCs and a 12.5 percent increase in advances given by the non-deposit-taking NBFCs.
Lendingkart, InCred, Capital Float, Indifi Technologies, CreditMantri, IndiaLends and Instakash Technologies, among others are the other startups in the lending space.
In August this year, InCred raised $75 million in funding, which made it India’s biggest fintech round so far this year. The funding round was led by Bhupinder Singh, and other marquee investors including Ranjan Pai, Anshu Jain (former co-CEO of Deutsche Bank), IDFC Private Equity and Paragon Partners.
In the same month, another startup Lendingkart announced to raise $10 million debt fund from Kotak Mahindra Bank, Aditya Birla Financial Services and other financial institutions.
The company has so far raised more than $40 million in debt from the two banks and various NBFCs, including IFMR Capital Finance Pvt. Ltd, Hinduja Leyland Finance Ltd, Caspian Impact Investments Pvt. Ltd, Mannapuram Finance Ltd and Sundaram Finance Ltd.
In May last year, Capital Float raised $25 million in an investment round led by US-based Creation Investments.