Unless you have a platinum credit card to flaunt, you're probably among millions of Indians who may know a thing or two about just how nerve-wracking and arduous the process of getting a bank loan is.
And despite the exhortations of PM Narendra Modi, getting big banks to deem you credit worthy is a feat in itself--you must rank high on parameters like where you work, how much money you make, your credit score, your tax filing history and even your marital status-–to land a loan.
In fact, the vast majority of people in India may not even qualify for loans at traditional banks as they may not work for companies that are typically favoured by banks. Even multi-million dollar start-up employers often fall on a high-risk category, ranking them below borrowers that get the cheapest loans, say experts.
Given the difficulty of the loan granting process, a number of fin-tech players-–ranging from online players assisting banks to independent peer-to-peer (P2P) lenders--have stepped in to serve those who otherwise would be turned away by banks, or to make the process less cumbersome.
One such lender is Qbera, a web-based digital lending platform, says it will give out personal loans of up to ₹5 lakhs to salaried employees of over 700,000 Indian companies that currently aren't eligible for loans at big banks and NBFCs in as little as a few hours. While traditional banks typically lend to individuals who make over ₹6 lakh per annum and CIBIL scores of over 740, Qbera targets individuals who have net income between ₹20,000 and ₹75,000 per month and CIBIL scores as low as 625, as well as people who are new to credit and therefore lacking credit history, Aditya Kumar, founder and CEO of Qbera, told HuffPost India.
The company evaluates credit-worthiness of borrowers based on complex data analysis from 33 different parameters including financial history, social media data, demographics, educational background, zip code, among others, said Kumar. Interest rates on its average loan disbursements can be 13.99% or higher, compared to about 16 per cent or higher on comparable size loans from banks. Qbera, which currently operates in three markets, hopes to expand to 13 markets in this financial year, building its portfolio to more than ₹150 crores, added Kumar. The company has a tie-up with RBL Bank, which ultimately disburses the loans on its platform.
Another web-based lender Rubique, founded in 2014 by former banking professionals, is an online marketplace offering loans and credit products for individuals and small businesses, connecting them to a network of financial institutions that are looking to shorten loan processing times and find eligible borrowers. Using complex algorithms and artificial intelligence tools to run data analytics on the credit profiles of potential borrowers, and by roping in "influencers"--retailers or individual salespeople who recommend loans to their customers while selling a product or a service–-it helps provide credit for a variety of small personal and business loans.
For borrowers, the platform provides "predictability" by giving them a list of lenders who are interested in lending to borrowers of their credit profile, significantly cutting down turnaround times, Rubique's Founder and CEO Manavjeet Singh told HuffPost India. It also helps traditional small-to-medium sized enterprises (SMEs) who aren't typically tech savvy to find suitable credit lines without having to go to a traditional bank. Many SMEs face serious challenges in raising finance from banks and financial institutions and are left at the mercy of local unorganized financiers who charge high interest rates, noted Singh.
Like Qbera, Rubique also serves a number of borrowers who lack credit history and are new to loans. For financial institutions, it helps them lower their cost of finding borrowers, said Singh. Rubique, which is backed by Kalaari Capital and a number of angel investors, sees itself as a neutral platform and become the one-stop shop for loans. It has disbursed more than ₹1,250 crore worth of loans thus far.
A piece of the peer-to-peer (P2P) pie
A whole new crop of peer-to-peer (P2P) lending platforms continues to grow in the country that aim to connect interested borrowers with individual lenders or institutions, who can in turn earn regular interest income by lending to a diverse array of borrowers depending on their risk profiles.
Gurugram-based P2P lender Faircent, one of the first movers in the space, for instance, hopes to "democratise" lending by directly connecting lenders with borrowers, offering them attractive interest rates compared to traditional banks, said Rajat Gandhi, founder and CEO of Faircent.
It does so by removing the "intermediary costs"of traditional banks, which typically provide low interest rates on deposits (6-10%) and lend at much higher rates (18-36%), keeping a high margin to pay for banking operations. Faircent's typical borrowers raise funds for small personal loans such as for medical expenses or to consolidate expensive debt from other institutions. The company also uses data analytics to assess creditworthiness based on the information it collects from borrowers.
For lenders, it provides a portfolio of diverse borrowers, diversifying their risk and helping them earn returns of up to 16 to 19 per cent, Gandhi told HuffPost India. For instance, a lender could make a net 16 per cent return on a loan of ₹150,000 spread across three borrowers for a period of one year at various interest rates depending on the risk profile of individual borrowers. Faircent's algorithm draws up the appropriate investment portfolio for individual lenders depending on their risk appetite. Faircent's borrowers range from salaried individuals to micro enterprises.
Faircent is only one of many P2P lenders in the market. Other players include i-lend; Tachyloans, which is backed by Singapore-based fintech start-up FinMomenta; Monexo Innovations; and Lendbox.
To be sure, while P2P lending is already fairly established in a number of Western markets and in China, the industry is still unregulated in India and its exact size is hard to estimate. The Reserve Bank of India is expected to come up with guidelines to govern the industry this year, which should bring further transparency and could be good for the industry, according to Gandhi.
Fintech executives such as Gandhi strongly believe that India is "credit-starved" and technology can play a big role in helping bridge the gap between financial institutions and people.
As for financial risk, Gandhi noted Indians aren't new to debt as informal moneylenders have always had a place in Indian society. However, many of them have seen limited scope because of localised opportunities.
With fin-tech platforms catching on fast, financial inclusion through lending has the potential to become a much sought-after financing tool for a growing economy, and a boon for borrowers.