Gaurav Chopra and Mayank Kachhwaha spotted a gap in India’s lending market four years ago and decided to do something about it.
The two entrepreneurs, who worked for a credit company in London, knew that many in India – individuals or small businesses – are unable to secure loans, or go to loan sharks who charge high interest rates, due to no credit history. To address the problem, Mr Chopra and Mr Kachhwaha set up IndiaLends, an online platform that assesses borrowers' credit worthiness using technology and helps them secure loans from banks and non-banking financial companies.
“Credit was available in the market but it was not readily accessible to everyone,” says Mr Chopra, chief executive of IndiaLends based in New Delhi. “Currently, we are providing credit products and services to over eight million customers.”
The company's clientele include people who have never secured a credit facility before, self-employed individuals and those from smaller cities. Through its associations with more than 50 banks and non-banking financial companies, IndiaLends extends financing facilities which could range from anywhere between 10,000 Indian rupees (Dh516) and 7 million rupees.
"We've observed a sharp rise in loans for reasons varying from funding higher studies, to adding extra capital to further businesses, handling wedding expenses, to travel," says Mr Chopra.
Access to credit from formal channels of funding is becoming a major issue for people and even small enterprises. India's financial institutions are facing a liquidity crunch and availability of limited credit is affecting growth. Earlier this month, Moody's Investors Service reduced its 2018-19 fiscal year economic growth projections for India to 4.9 per cent from 5.8 per cent. The credit crunch among non-bank financial institutions, which have been major providers of retail loans, has exacerbated the slowdown, according to the credit rating agency.
Digital lending platforms such as IndiaLends are stepping in to fill the void. Digital lending in recent years has surged in India, primarily offering small loans to mobile phone users. Digital financing companies rely on algorithms and data to assess risk when disbursing funds to customers.
The rapid expansion of smartphone ownership, internet access and a shift towards consumerism in the country have helped fuel the growth of these enterprises, analysts say.
There are 338 online lending start-ups in India, according to global financial technology research platform Medici.
The value of retail loans disbursed digitally in India is expected to reach a total of more than $1 trillion (Dh3.67tn) between 2018 to 2023, according to the Boston Consulting Group. It forecasts the value of loans allocated via digital lending will more than triple in 2023, compared with 2019.
“When it comes to banking, a large part of the population is under-penetrated in India,” says Vikram Pandya, the FinTech director at SP Jain School of Global Management. “Banks don’t want to reach out to remote areas where the cost of on-boarding, management and recovery is very high. Online lending start-ups solve this problem and hence so many players find this space attractive.”
Start-ups are not the only companies trying to grab their share of digital lending sector in India. Global technology giants are equally enthusiastic and vying to grab a slice of the pie.
Last year, Amazon launched an online sellers’ lending network, which links its sellers to third-party lenders. Google in 2018 partnered with four major Indian banks: HDFC, Federal Bank, ICICI, and Kotak Mahindra Bank.
Chinese smartphone company Xiaomi is the latest to enter the fray. This month, Xiaomi started Mi Credit, which connects smartphone users with lending companies for quick access to loans of up to 100,000 rupees.
“For now, India definitely is our biggest market outside China, not only in credit but pretty much in everything else,” Hong Feng, the co-founder and senior vice president of Xiaomi, told Reuters recently.
“We need to focus ourselves to make it really successful. We need to bring in more partners, bring more products, bring more users to make it really scale up. That’s our focus for the next 12 months,” he said.
India is the world’s second-largest smartphone market after China, with 450 million users, according to Counterpoint Research, and that number is bound to grow in the future. India also has the second-largest unbanked population after China, as more than 190 million people in the country do not have access to a bank account, according to the World Bank data.
These are the two prime factors that are supporting the prospects of digital lending market’s growth in the country, according to analysts.
CASHe is one of the biggest home-grown companies in the digital lending sector in India. It has disbursed more than 17 billion rupees worth of loans since it started operations in 2017.
The average loan request it receives from customers is about 35,000 to 40,000 rupees. The Mumbai company primarily focuses on catering to millennials, which has proved to be a high-growth market.
“For someone who is new into the job market, there is hardly any credit history,” says Ketan Patel, chief executive of CASHe.
“This is when the big idea struck us. CASHe began its operations with a clear purpose to provide India’s urban working millennials with a path to better financial health with the aid of technology through their smartphones.”
Lending companies and banks are also benefitting from the growth of digital platforms, as they can now reach a new set of customers.
“It’s not just the consumers that are attracted to digital lending by FinTech companies, but is has also attracted the attention of traditional lenders with large balance sheets as well,” says Mr Shah. Banks and financial institutions are looking at FinTech companies to collaborate and drive change.
There is also a growing number of online companies in India offering peer-to-peer loans, where people can earn interest by lending money to others on digital platforms. Many are still wary of this market, though.
“As a peer-to-peer investment that is just five years old, there is not enough material or data available for investors,” says Bhavin Patel, the founder and chief executive of LenDenClub. “We are trying to develop more data points and information for our investors so that they understand peer-to-peer investment when they start investing.”
Nevertheless, he says the company has managed to grow five-fold over the past year to reach a total deal count of more than 50,000 loans.
"We are building a whole ecosystem of lenders, borrowers, service providers," says Mr Patel. "A lot of [the other digital lending companies] are just platforms." There is a lot of confidence in the sector overall given its rapid growth and future potential. Global consulting company PwC says online lending in India experienced the highest deal activity in the country's FinTech market last year, with 617 deals totalling about $530 million. With overcrowding, competition between digital lending platforms is intensifying by the day and market observers say regulatory oversight issues should also be addressed.
“To compete in the fast-changing global technological landscape, the Indian lending sector will need continuing support from the government and regulators to further evolve and scale up,” says Mr Patel.
India has yet to introduce data protection laws and that has raised concerns over privacy and how data is being used by the tech companies.
Companies are unilaterally taking steps to protect user data as best as they can.
Manu Jain, Xiaomi’s India head, says user data cannot be misused on his platform.
As digital lending expands in India, it is even tapping the 's sizeable, traditional gold market, using the previous metal as a collateral against loans.
FinTech start-up from Bangalore, Rupeek, is offering the service to its customers and Sumit Maniyar, chief executive of Rupeek, says the transformation of the lending sector is only just beginning in India.
“We’re going to witness significant changes in the FinTech sector in the next five years, as technology has changed the way people transact with money,” he says.
“Smartphone penetration and advancement in technology has created a demand from consumers who would like everything in their phone now,” says Mr Maniyar.