Harshvardhan Lunia, 42, has seen small businesses and their struggles from early in his life. A chartered accountant by training who comes from a business family, he saw the dearth of institutional financial support for such enterprises early in his career. This led to him founding fintech start-up Lendingkart along with his schoolmate Mukul Sachan, in 2014. Their aim: to revolutionise access to finance for micro, small and medium enterprises (MSMEs) through innovative tech solutions and cash flow-based lending.
Business has been good over the past decade and while Sachan left the Ahmedabad-based firm in 2019, Lendingkart has grown from strength to strength. Under Lunia’s watch, it posted its highest-ever profit after tax (PAT) and total income in FY23. No wonder that it has emerged as the Best Fintech in Lending in the BT-KPMG Best Banks and NBFCs Survey 2022-23.
Lunia recalls that initially, it focussed on direct lending. But, over time, it recognised the limitation of this approach in addressing the vast credit gap for MSMEs. “This realisation led to a strategic shift towards co-lending partnerships with banks and NBFCs to leverage their resources and expertise. Today, more than 80% of our business is through co-lending,” says the Co-founder and CEO of Lendingkart, which operates as a Reserve Bank of India-registered NBFC. The fintech has names such as Punjab National Bank, Canara Bank, Bank of Maharashtra, IDFC First Bank, Aditya Birla Capital, and U Gro Capital among its co-lending partners. Incidentally, in its latest report, RBI’s expert committee on MSMEs said the sector has an estimated credit gap of Rs 20-25 lakh crore.
Lendingkart, which has raised $232 million till date per Tracxn data, has among its investors Fullerton Financial Holdings, Bertelsmann, Mayfield India, Saama Capital, Sistema Asia, and India Quotient. In FY23, it reported a PAT of Rs 116 crore against a loss of Rs 141 crore in FY22, while its total income surged 28.95% year-on-year (YoY) to Rs 824 crore. “We took one large provision in FY22 to clear the books… if you remove the impact of provisions taken in FY22, we were always profitable,” says Lunia, adding that Lendingkart’s top line has jumped nearly four times since FY19 and over 20 times since FY17.
Lunia, an MBA from the Indian School of Business, Hyderabad, attributes Lendingkart’s profitability in FY23 to strategic initiatives and operational improvements. The company made substantial investments in technology development over recent years, enhancing its operational efficiency and customer experience, he says. “A focus on bolstering risk management capabilities enabled us to better assess creditworthiness, monitor loan performance, and mitigate potential losses,” he explains.
Lunia says the company’s emphasis on expanding its reach through digital channels has enabled it to connect with a wider customer base, helping it penetrate untapped markets. Plus, the co-lending partnerships have “provided us with access to additional funds, bolstering our lending capacity”. Lendingkart’s average loan ticket size is Rs 7-8 lakh, and its customers mostly fall into the age group of 23-45, are graduates and run GST-registered businesses, says Lunia. Industry watchers say that fintech-focussed MSMEs offer loans at 20-24% interest for 12-36 months and it is a high-margin business. “Their cost of capital usually remains around 12%, providing a substantial margin for these businesses,” says Sameer Singh Jaini, Founder & CEO of consulting firm The Digital Fifth, adding that such firms should ensure that their cost of capital remains low through digital and other processes, he adds.
And it helps to have a wide spread of customers. “In the manufacturing sector, our customers range from small-scale producers of goods to mid-sized manufacturers involved in various industries such as textiles, electronics, foodgrain, machinery, and more,” says Lunia, adding that in the services sector, its customers include retail outlets, restaurants, healthcare providers, IT services firms, and consulting agencies.
Lendingkart, which plans to go public in the next 18-24 months, primarily finances debt through a combination of internal capital and co-lending partnerships with banks and financial institutions. Banks tend to exercise caution when lending to NBFC-fintech firms, primarily due to risk management and regulatory compliance concerns, says Lunia. “However, our experience has shown that banks are often willing to collaborate with NBFC-fintech firms, especially when there is a mutual benefit in terms of growth and synergy… These partnerships allow banks to tap into the technological expertise and market reach of fintech firms while managing risks effectively,” he says, adding that the challenge for Lendingkart is to reach the remotest MSMEs in India.
In FY24, the company has made a deliberate move to transition from simply being a business loan provider to becoming an MSME finance specialist. “Having been in the industry for a decade, we understand the ins and outs of MSMEs better than anyone else. Our goal is to simplify the lives of MSMEs by partnering with the ecosystem and building that on the back of data and technology. Moving forward, we will continue to develop tailored solutions that directly address the evolving needs of MSMEs, solidifying our position as their go-to financial partner,” he says.
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