From systemic to algorithmic -Lending at scale
Passion doesn’t pay the bills especially for Micro, Small and Medium enterprises in India.
The days of community banking are long gone and unlike community banks, which base their lending decisions on the needs of families and local businesses, commercial banks have to justify their decisions with profit margins. Hence, with low profit margins, minimal collateral and no credit history to speak of, MSMEs find it difficult to source loans from large commercial banks.
“ Lending is more than just loaning money, it’s about empowering dreamers.”
For Harshvardhan Lunia, a London returned banker and ISB graduate, MSME entrepreneurs are the makers of India’s future and were being left behind when it came to securing financial support. Having seen this as a huge opportunity, he decided to launch a zero collateral NBFC leveraging data to make lending decisions.
On this episode of Building it up with Bertelsmann, he took us down memory lane exploring how a frustrating car loan application germinated a trust first- data driven approach, which changed the way lending will be done in India.
Here are some interesting excerpts from the episode which highlight how Lendingkart revolutionized the fintech industry in India, to become the most widespread and trusted NBFC of the country.
MSMEs messiahs
With increasing internet and smartphone accessibility, Fintech has become synonymous with financial inclusion in India today. From the nearby kirana to boutique tailor stores, transactions across MSMEs have gone digital, so why should lending be any different?
With emergence of Fintech startups like Lendingkart, loans which would have taken weeks and months to get approved, are now being serviced within a matter of days. This has in turn, enhanced access to working capital for MSMEs across the country, helping them grow and play their role in building the economy.
Data the new fintech collateral
“I’ve given out thousands of loans pan India, but 99% of my borrowers haven’t even seen me!”
Risk has always come before reward. However, saying that before extending 70,000 loans without collateral, is like taking a roller coaster ride without the seatbelt!
For the banker in Harshvardhan Lunia, meeting and assessing candidates was almost second nature. However, when you’re scaling a cross border Fintech startup, you can’t afford to meet all your candidates. Data becomes your benefactor then.
Lendingkart doesn’t rely on unnecessary documentation like past financial statements or income tax returns to access the creditworthiness of their candidates. They use big data analytics and AI to assign credit scores. If you’re an e-commerce enterprise, all you need is bank statements from the last few months to apply for a loan.
Don’t find faults before they default
“If someone is trusting me with their capital, business or office space then I should extend the same benefit of doubt to others.”
When Harshvardhan and his team were setting up their office, they realized that entrepreneurs form a community, which needed trust to sustain their collective dreams. Hence, they made trust the first cornerstone of their company, and as a result disrupted the systemic approach to lending.
While their trust first approach helped them win customers, the second company cornerstone- of introspection- helped them deal with defaulters. You would be surprised to read that they have only 38 cases of fraud, after extending 70,000 loans! Harshvardhan insists that those cases helped the team introspect about what they did wrong, and anticipate scenarios where the borrower could go wrong.
Sustenance is success
A second generation Marwari businessman, Harshvardhan’s philosophy is simple. Make decisions that sustain the business, till the next generation grows out of its diapers. For him and his team, sustenance is the biggest milestone. With this attitude disciplining them, no competitor worries them, because their aim is to keep the engine running.
Tune in to the podcast here to catch more of Harshvardhan Lunia’s insights on an algorithmic approach to scaling startups.
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Tickle your brain cells with these interesting reads:
https://www.entrepreneur.com/article/330288
https://yourstory.com/2019/12/turning-point-lendingkart-fintech-startup-ahmedabad
