EarlySalary, a company which offers salary advances and instant cash loans, has raised $4 million in funding from IDG Ventures India and Dewan Housing Finance Corp (DHFL). Akshay Mehrotra, CFO of EarlySalary, told MediaNama that the company lends from its own balance sheet and will use the funds to build its lending book and develop its products. EarlySalary has its own non-banking financial company (NBFC) and lends from the NBFC’s books. It acquired an NBFC called Ashish Securities to get the required licence, as indicated by this Mint report.

 

How much does EarlySalary lend and charge?

EarlySalary claims that it has distributed more than 15,000 loans, and typically, customers borrow between Rs 8,000 to Rs 1,00,000. It is right now targeting salaried young working professionals. Mehrotra said that 35% of their customers are new to credit and do not have a credit history, and it is looking to fill the gap for them.

The company charges Rs 9 per Rs 10,000 a customer borrows per day. Mehrotra said typically customers repay loans within 7 days up to 30 days. So for a 30-day loan, a customer is charged an interest of Rs 270 on a principal of Rs 10,000. This translates to around 2.7% interest per month or around 30% per annum. Credit cards in India charge an interest in the range of 1.5% to 2.99%.

But Mehrotra said that per annum interest calculation does not work for their business as they are looking to lend only for short periods. “The goal is to provide a cheaper loan as compared to a credit card. So for a Rs 20,000 loan a customer has to pay only Rs 540 interest.”

Still, that’s a short term, high-interest, unsecured loan.

EarlySalary is looking to grow its customer base and provide 200,000 loans in this financial year.

Default on payments

Currently, EarlySalary says it sees 99% of its loans being repaid. However, the company charges Rs 500 for every month a customers defaults on paying back the loan. For example, if a customer defaults on a Rs 10,000 loan for three months, they will be charged Rs 1,500 plus the interest which is due. However, the company deducts the loan repayment through the National Automated Clearing House (NACH) where money will be deducted directly from a bank account.

Credit profile building

EarlySalary is looking expand team specifically in skill sets related to machine learning. Mehrotra added that the company has a team of around 40 people and is not looking to hire more than 20 people right now. Some of the employees will be used for customer service.

EarlySalary has developed its own underwriting system which is a self-learning Algo-based decision system. It reviews a customer’s social media and credit bureau data to approve a loan for them. Goyal said that its app asks customers to sign in with their Facebook credentials and also asks the following information:

– PAN card information
– A month’s bank statement
– Where a person works

EarlySalary builds a credit profile based on 800 data points. Mehrotra explained that the algorithms also take into account a customer’s Facebook friends while building a profile. “It also indexes a company’s employees on social media and takes into account whether the company is paying salary on time,” Mehrotra elaborated on how it uses information from social media.

With this, the company says that it is able to give 70% loans in under 10 minutes. Mehrotra added that it is looking to build its machine learning capability to bring down the time to one second.