IndiaLends will build its lending-as-a-Service platform over the coming months which will allow any third-party entity to integrate a loan marketplace within their platform through Application Programme Interfaces. In an interview with MediaNama, Gaurav Chopra, the platform’s founder and chief executive officer, said that with weak credit penetration in India the company wants to partner with third-party players to offer personal loans and other credit products.
This has two benefits, Chopra said. The first, it will expand IndiaLends’ platform to new sets of users who otherwise would not have come to their platform, and second, it helps third-party players integrate financial services within their platform even if lending is not their primary business, he explained.
IndiaLends recently raised $5.1 million from existing investors ACP Partners and DSG Consumer Partners. The company has over 8 million customers and has disbursed more than Rs 2,000 crore in person loans since its launch. Chopra said that they will use this money to digitise their processes to a greater extent to make it seamless, build on their API stack and hire new employees from the data science and engineering field.
“This fresh round of financing comes at a critical point in our business, enabling us to build our services and offer innovative products to our customers, as we usher into the next phase of growth.Although the pandemic had a severe impact on the sector, it has also led to the belief that digital lending is now the new normal. This investment is a testament to the fact that the sector is going to witness an upward curve in the days to come,” said Chopra.
MediaNama: In 2018, IndiaLends raised $10 million.With the recent funding round of $5 million, how will the company utilise these funds?
Gaurav Chopra: With the previous funding round we spent the funds to scale our technology to make the platform seamless and glitch-free. We wanted to increase our user-base, which has grown from 2 million to 8 million. We were able to achieve our targets, but now in a post-COVID environment we are focusing on a few areas like digitisation of all the processes. For instance, a loan process now requires the customer to provide a credit report, validate bank account, comply with the Know-Your-Customer norms and set up a repayment mechanism. Prior to the pandemic, we would sometimes need to send our agents to pick up documents or verify information. Today, we have digitised all these processes and now it takes place automatically on the platform. This money is meant to enhance the technology stack, build on our APIs services and hiring more employees in data science and technology. Only a part will be marketing spends.
MediaNama: The company recently launched a plug and play channel called lending as a service. Could you explain what the strategy is?
Gaurav Chopra: There are enough companies out there that understand that their users want access to financial products and they can earn a fee for providing these services. But their primary competence is not in lending and to start a credit marketplace yourself is difficult. Through out API Stack they can integrate our platform within their applications and in return we either earn a fee for this service or there is a revenue sharing model. This way these third-party companies get access to a credit marketplace channel and we get access to a wider set of customers. Anybody with a 40-50 million user base can be our potential partner.
MediaNama: Do full stack payments and lending fintechs threaten credit marketplace models like IndiaLends?
Gaurav Chopra: Unlike food delivery or ride hailing apps, you need hundreds of lenders to fill the credit gap. The fintech apps have specific products that are meant to a specific target segment or a specific use-case. So if a customer is paying for a service and uses credit, like under Buy-Now-Pay-Later, these full stack solutions make sense. But if you want a Rs 10 lakh loan you would rather go directly to a lender or a marketplace for the best options. Your shopping and spending behaviour can be very different from your credit problem. So these players may be solving the marketing problem, but the credit risk and supply problem still remains a challenge. The problem is that the credit market in India suffers from multiple issues. It is not just a convenience factor that drives consumers to our platform, it is the fact that we are offering loans from multiple lenders to the borrower based on their credit profiles and risk.
MediaNama: What is the monthly loan disbursement rate as of date ? Are you back to pre-COVID levels?
Gaurav Chopra: The market is back to 65-70% of the overall pre-COVID levels, and our monthly disbursement rate is now at Rs 70-75 crore. There is a change in the kinds of loan disbursement that is taking place, mainly due to the supply side. While the lenders have opened up their business, they are still specific sectors where they are cautious. Credit to segments like new-to-credit and self-employed is still weak, whereas credit to the prime segment has gone beyond pre-COVID levels. On the self-employed side, demand has risen significantly as people want to revive their businesses. While on the salaried side, demand fell in the aftermath of the lockdown as spending came down. But we are now seeing that demand among salaried consumers is picking up as people are going back to work, they are looking to buy a new vehicle or doing some home improvements.
MediaNama: Are banks and NBFCs still cautious providing fresh personal loans?
Gaurav Chopra: We work with all sorts of lenders within the industry including mid-sized and large banks, Peer-2-Peer lenders, non-bank lenders and a number of fintech lenders. Each of them have a different appetite for lending. While the big banks are happy to provide a Rs 5 lakh loan for 12-24 months, the fintechs and P2P lenders want to stick to the Rs 50,000 to Rs 1 lakh segment. Some segments have seen a rise in the interest rate, while others have seen a fall in their interest rate. This is more a function of the lenders’ risk appetite and not to do with policy rate transmission. Pre-COVID to now at an aggregate level the lending rates have risen by 100 to 150 basis points, while some segments have seen a slight dip by 25-50 bps drop in interest rates.
MediaNama: Many borrowers benefited from the six month moratorium under the Governments COVID-19 relief package. Yet many were excluded. What proportion of your borrowers opted for the moratorium? Has this lead to higher delinquencies across your book ?
Gaurav Chopra: When it comes to the moratorium, it was a choice of the lender whether to provide it or not. As long as your account was current, the lender had to give you the moratorium. We saw around 30-35% of our customers taking the moratorium, whereas the others were comfortable to pay their installments, as around 70% of our customers are in the salaried segment. In November and December 2020, we saw the delinquencies rise among our non-salaried customers but that has now stabilised now. As of today, the 90+ days-past-due delinquency rate for salaried borrowers who borrow at over 10% is less than 1%, whereas the mid-segment the delinquencies rose by 2.5-4% and in the self-employed segment delinquencies would be at around 4-5%. There will be situations where things are stressful, but most borrowers are getting back to being responsible and are paying attention to their credit scores.
MediaNama: The Reserve Bank of India recently set up a working group on digital lending companies, in the wake of the predatory digital lending apps fiasco. How can the industry address this issue?
Gaurav Chopra: The problem is that if there is borrower who is willing at exorbitant rates and a lender willing to provide a loan, you cannot stop that transaction. Where the industry has to step in is to educate the consumers on which lenders they should trust, what questions they must ask when applying for a loan and what to watch out for. The regulator should also ban lenders who do not follow regulations. Many of these fake lenders did not have a NBFC license or they were riding on top of a regulated lender. Even companies that are marketing loans, whether it is social media or app stores, need to be made accountable and should be brought under some regulations. There is a need for more policing of these digital lending apps. The regulator has taken cognisance of this issue and we have seen a clean up of these apps in the last few months. We have approached the RBI asking them to ensure that any new digital lender gets a certification from the Digital Lenders Association of India or the Fintech Associate for Consumer Empowerment.