Loans without a credit score: a business opportunity


This Startup Saw a Huge Business Opportunity in Offering Finance to Newcomers to the Credit System

Often, entrepreneurs derive their business ideas from the problems they witness in their daily lives. Mumbai-based FlexiLoans is one of them. The online lending platform offers quick and easy loans to those who have no credit history but have a good business record.

The four co-founders – Deepak Jain, Ritesh Jain, Abhishek Kothari, Manish Lunia – are all in their thirties and originally met at the Indian School of Business (ISB) where they were in the class of 2009. After having After graduating, they separated, but stayed in touch.

Deepak Jain has worked in investment banking and management consulting with Axis Capital and JSW. Ritesh Jain spent time in the startup space and was the CFO of Mr. Kothari has 11 years of experience building data and analytics strategies behind him. And Mr. Lunia has seen the credit space up close, with Aditya Birla Financial Services.

For the absence of a credit score

“We’ve seen how difficult it is for people with no credit history to get loans,” says Lunia. They remember meeting many young entrepreneurs with good ideas and potential, but unable to get a loan because they had never taken one before or even used a credit card, and therefore had no credit rating. And there were young entrepreneurs who were growing family businesses at over 50% a year but couldn’t get loans because the assets were in the name of an older family member. “Take the example of a stationery store that needs money in four to five days to take advantage of the textbook buying season,” says Lunia. “Most banks would take a month or two to approve the loan application, and by then the opportunity would have been lost.”

Ritesh Jain says, “In more advanced markets, for example in the US, there are alternative platforms that lend at higher rates based on cash flow statements. In India, this need had been met only by the informal sector. The friends realized that this large NTC (New To Credit) space offered a huge business opportunity. They estimate that there are nearly 50 million deserving businesses that are not getting adequate and timely access to credit. They decided to maintain it.

Meet the demand

In August 2015 they started thinking about what exactly the business would do, and in January 2016 they registered FlexiLoans, which offered loans within 48 hours (assuming all the paperwork was in place) to small and medium-sized enterprises to meet their working capital. requirements.

In April last year, they gave their first loan: ₹23,000, to an Uber driver in Bangalore. Today, the company receives 2,500 applications each month. In just over a year, they disbursed 5,000 loans with the average size being less than ₹5 lakh. The smallest amount they lent is ₹7,500 – with around 40-50 loans of ₹10,000 – and the largest was ₹50 lakh. Currently, they disburse between ₹10 crore and ₹20 crore per month, and the company has increased loan penalties more than 15 times in the last seven months.

The FlexiLoans approach mixes data analysis, technology, links and funds. Strategic tie-ups with leading e-commerce players such as Flipkart and ShopClues, among others, help them target the nearly 20 million sellers in these markets. “These partners also share data on business people who need loans, including reviews and ratings, which helps us learn about potential borrowers,” says Ritesh Jain. “We rely on cash documents to get an idea of ​​repayment capacity. We also have links with collection and collection agencies.

Being a player in an underserved niche allows them to charge a higher interest rate: their rates vary between 1% and 2% per month. They also get income through a one-time processing fee, usually up to 2% of a loan.

Although they deal with people with no credit history, they haven’t had a single default, only four or five late payments. It has been gratifying, they say, to see businesses grow with their help. Mr Lunia cites a 23-year-old borrower from Chennai whose first loan was ₹75,000 and who within nine months gradually moved to a loan of ₹4 lakh. “Nearly 80% of our borrowers have seen their sales increase by 30%,” he says.

Secure the foundations

In its first year of operation, FlexiLoans also partnered with a finance company to expand its reach and attract new customers in the lending segment, which is estimated at $300 billion. It also has alliances with some banks in the co-lending space (where the company and the bank each lend a portion of the loan). It has also partnered with companies that make point-of-sale machines, to get more information and access to merchants, another growing market: government data shows the number of point-of-sale terminals has increased one million in the last six months.

In September 2016, FlexiLoans raised ₹100 crore in seed funding – the highest for any Indian startup to date – from high profile angel investors including Sanjay Nayar, Managing Director (CEO) of KKR India and Vikram Sud, former head of operations and technology at Citibank.

Next on the agenda: new products, such as supply chain finance and invoice discounting. And from its current reach of 70 cities, it plans to expand to 200 over the next 18 months, and more than double loan disbursements, to around ₹500 crore.

The pitfalls of lending platforms

Manish Kumar, co-founder of Grex & Realx, says these lending platforms do valuable business, but there are also pitfalls. “The basic data for these entities comes from the markets, and we see big names going through tough times. So what happens to sellers on these platforms? The lending entity will suffer because it is primarily doing seller financing. They are surely better than traditional NBFCs. But then you may never know their NPA scenario.

Kunal Nandwani, founder of uTrade Solutions and director of Chandigarh Angels Network, is “cautiously optimistic” about the segment. He feels that there are too many people and that you have to be too aggressive to grow. “You can only scale at a certain rate, and once the segment reaches its size, it will also become highly regulated. In this scenario, the technology [alone] would no longer be disruptive.


Based: January 2016

Founders: Deepak Jain, Ritesh Jain, Abhishek Kothari, Manish Lunia

Funding: ₹100,000,000

Employees: 60



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