“Think Growth. Think SME’s”
In a recent article in Forbes, Ajit Ranade, the Chief Economist at Aditya Birla Group delineated the growth structure of Indian economy, emphasising this adage. Globally, in terms of ease of doing business, India ranks 130 out of 189. Apart from lack of infrastructure or access to credit, the impediments faced by SMEs and MSMEs in India are rooted deep in a culture that did not value innovation and self-sustenance to a large extent.
While this is not the case anymore – ‘StartUp India, StandUp India’ being a strong indicator of the change, and several other government and private sector initiatives – the sector is still largely unorganised, thereby struggling to maintain even the basic workflow requirements, in terms of capital access.
Lack of credit history, collateral, and accounting discipline, further mars these small-time businessmen’s capacity to procure funds from sources other than shady money lenders and friends and family.
It is this pain point, that Ahmedabad-based Lendingkart Group, an instant working capital finance platform, aims to solve. Founded in 2014 by ex-banker and ISB Hyderabad alumnus, Harshvardhan Lunia and ex-ISRO scientist, IIM Bangalore alumnus, Mukul Sachan, the startup is on a mission to take the entire process of SME lending online. The idea, although was conceptualised by Lunia, Mukul’s role lies in giving it a coherent shape in terms of a viable business model.
The duo started their journey by interacting with small business owners to understand their needs, which ultimately led them towards creating a niche market design – the instant availability of short-term loans with small ticket sizes.
As Harshvardhan recalls, “In the first year of our business, when our NBFC team celebrated the very first loan we disbursed in Guwahati – 2,000 kms away from where we were – that’s when we realised the potential of the platform. Since then we have covered hundreds of new towns and been a part of thousands of success stories, each significant in its own way. Although our offices are located in three cities – Ahmedabad, Bengaluru, and Mumbai, our NBFC has till date serviced over 5,600 loans in 397 towns and cities across 28 states in India in the past 2.5 years since inception.”
Democratising The Working Capital Finance Mechanism
Harshvardhan started his career with an advisory business and realised the various inefficiencies that marred the SME lending space in India. The credit decisions in banks took months. Any potential analysis was hindered by lack or complete absence of data. Information asymmetry was widespread. In all, SMEs had no resources to execute financing transactions and the ones which did, needed hand holding for processes.
With players like KredX, Aye Finance, Veritas Finance etc., already working in the SME lending, Lendingkart Group thus wants to disrupt the sector by democratising it and enabling it in an organised way – with a real time, automated, data-driven credit evaluation and decision system.
As Harshvardhan defines, “We envision Lendingkart Group NBFC to become synonymous with an online credit provider that has the simplest and most efficient loan delivery system, easiest access and the most flexible terms by leveraging on cutting-edge technology for data analytics and cash management.”
He further adds, “Lendingkart Group has developed its services on four key pillars – No human intervention (to address subjectivity and last mile fraud), instant money (addressing the real- time demand), simple (ensuring dependencies on intermediaries), and hyper-flexible terms for repayment and renewal.”
This allows the platform to work differently from banks and other NBFCs by focussing on a vendor’s current year cash flows and business growth. The company has a completely online application process with no hassles of putting collaterals or physical verification by staff members.
It uses analytics and big data scoring to evaluate a prospective client’s business. As of now, it provides short-term working capital loans ranging from $740 to $14.8K (INR 50K to 10 Lakhs). The loan amount is then disbursed through affiliated lenders, or lending partners within a short span of three days.
One can apply for the desired loan amount on the company’s website. He/she is required to mention their background, and to upload the scanned copy of documents; such as registered name of the company, revenues generated in the last 12 months, nature of business etc.
The documents are then sent to the NBFC (Non-Banking Financial Company) that verifies and transfer to its analytics team to determine the ‘credit-worthiness’ of the applicant. The entire process is digitally integrated and the NBFC disburses the loan within 72 hours from the time of application.
When asked about the revenue model of the company, Harshvardhan says “A processing fee is charged for providing the loan that is very minimal and affordable. We also charge an interest rate that depends on the risk profile and creditworthiness of the applicant, which is as said, calculated by our software.”
Modus Operandi And Go-To-Market Strategy
On being questioned about the modus operandi, Harshvardhan says, “Initially, we focussed on making our partner network stronger by associating with leading marketplaces such as Flipkart, Paytm, Voonik, and Craftsvilla to service the financing need of online SMEs. Today, we service both online and offline small businesses for their financing needs.”
At present, its target audience includes any small business entrepreneur who needs working capital loan and has Internet access on his smartphone/computer. Since the company plans to reach the remotest parts of the country to narrow the gap between SMBs and loan providers, it aims to overcome the language barriers by issuing its application forms in various local and regional languages.
The firm has also been very active when it comes to funding and acquisition. Till date it has raised $42 Mn in two rounds of funding. In July 2015, Lendingkart Group secured $10 Mn (about INR 63 Cr) funding from venture capital funds Saama Capital and Mayfield Fund. In July this year, it raised $32 Mn in (INR 205 Cr.) in Series B round. The funding was divided into two parts viz. $20 Mn as equity and $12 Mn as debt. The investment was led by Bertelsmann India Investments (BII), with participation from Darrin Capital Management and existing investors – Mayfield India, Saama Capital, and India Quotient.
In October this year, it acqui-hired Bengaluru-based e-lending marketplace, KountMoney, which according to Harshvardhan was aimed at “boosting Lendingkart Group’s technology and data analytics capabilities. It will also help to broaden its service portfolio and develop efficient and consumer-centric product offerings.”
The founders also boast of company’s strong unit economics. As Harshvardhan says, “Because of the nature and offering of the product, we operate in a niche market. While many traditional banks and NBFCs cater to big ticket size loans spread over long tenures, the NBFC niche is serving the need of loans as small as INR 4-5 Lakh for a period of up to 12 months. This product category is currently not served by any one as traditional financial institutions do not see unit economic sense in this segment.”
700 Towns To Travel: The Road Ahead
By the end of the current financial year, the team aims to expand its geographic footprint to remote towns and cities in India with presence in every state and union territory.
The company further envisions to replace distributor credit/funding by friends and family by offering relatively economical source of funds at the click of a button. Currently, the borrowing power lies at the top of a product chain. It borrows not only for itself but also for the layer below them as the players in the bottom of the layer are not adequately catered by traditional financial institutions.
On being prompted to talk about next year’s targets, Harshvardhan says, “Lendingkart Group aims to strengthen its technology platform and enhance mobile capabilities to facilitate lenders for higher month-on-month growth in terms of loans disbursed and businesses catered to.”
The Indian fintech software market is forecasted to touch $2.4 Bn by 2020 from a current $1.2 Bn, as per a Nasscom report. The traditionally cash-driven Indian economy has responded well to the fintech opportunity, primarily triggered by a surge in ecommerce, and smartphone penetration. The transaction value for the Indian fintech sector is estimated to be approximately $33 Bn in 2016 and is forecasted to reach $73 Bn in 2020 growing at a five-year CAGR of 22%.
The industry has witnessed entrance of several players given the huge potential in the ecosystem. However, technology will be the biggest game changer in this sector and that is what Lendingkart Group is banking on. It has put in place a comprehensive system of its own checks and balances to mitigate risk and avoid defaulters.
On a concluding note, Harshvardhan sums it up best, “The fintech sector in India has the potential to catch up with its global counterparts as the various ecosystem players come together to orchestrate a much-needed change in the industry. What is needed now is the ready adoption of larger financial institution to collaborate more actively with the emerging fintech ecosystem.”
As per current estimates, India’s MSME sector represents about 58 Mn businesses, which is creating over 150 Mn jobs, and accounts for 45% of the country’s industrial output. With Lendingkart Group looking to tap into the largely unstructured market of alternative financing, there is tremendous opportunity for it to scale. Its radically different asset-free and speedy approach to solving the working finance problem for SMEs using technology, does place it in a different league from other players in the space. Any startup which wants to succeed in this space has to develop a foolproof risk model. How far will Lendingkart Group be able to do so using various modes of technology including analytics and data science, is something to watch out for.