EarlySalary, an online company which offers salary advances and instant cash loans, has raised its first debt financing of Rs 5 crore from IFMR Capital. Earlier this year, the company had raised Series A equity funding to the tune of $4 million from IDG Ventures India and Dewan Housing Finance Corp (DHFL).

The lending firm said that the debt infusion will be used as working capital. 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. It is common for NBFCs raise debt funding to replenish their loan books.

It is interesting to note that IFMR Capital has also invested in EarlySalary’s rival LoanMeet via debt funding.

What it charges customers

EarlySalary has already disbursed more than 7,000 loans last month and plans to reach a target of around 30,000+ loan disbursements per month by end of this financial year.

The company charges Rs 9 per Rs 10,000 a customer borrows per day. Akshay Mehrotra, CEO of the company, said it 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.

Credit profiling

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. The 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.

Meanwhile, the Reserve bank of India (RBI) looking to open a public credit registry incorporating unique identifiers for borrowers: Aadhaar for individuals, and Corporate Identification Number for companies. The RBI was also mooting for cash flow-based lending for borrowers who don’t have formal credit histories in agencies. In cash-flow based lending, transparency of credit information would serve as a “reputational collateral” for such borrowers.