The Small Borrowers' Bank

Five-year-old LendingKart, a fintech start-up in the short-term SME working capital space, has a 'WISH' philosophy - without human intervention; instant disbursal; simple process; and hyper flexibility in repayment. "The WISH philosophy is based on the feedback from small business borrowers," says Harshvardhan Lunia, Co-founder and CEO, LendingKart, which mainly operates from Ahmedabad, Bengaluru and Mumbai.

In a short span of time, this fintech firm has disbursed over 45,000 loans to over 33,000 micro, small and medium enterprises. The company projects a turnover of Rs 225 crore for 2018/19. The company also covers a wide geography with loans given out in about 1,300 cities. The total value of disbursal since inception is Rs 2,600 crore.

"I was always intrigued by SMEs in India," says Lunia, who left a cushy banking job in 2010 after working with some big names. His next stop was an entrepreneurial venture as a debt advisory platform, but that business didn't scale up. So, after three years, he was back figuring out his next move. His interest was piqued by global alternate lenders such as OnDeck Capital and LendingClub. They were giving established players a run for their money in under-served markets. Lunia decided to start LendingKart in April 2014, with the aim to tap small businesses with sub-Rs 10 lakh category of loans. Lunia's schoolmate Mukul Sachen also came in. Sachen, Co-founder and COO, had earlier worked as a scientist at ISRO.

The duo built their business using technology, catering to an under-served segment and making the process of applying for a loan easier. Today, all their customers come through online media like a mobile app or website.

The loans are working capital loans with tenures of 2-3 years. "We give growth money to small businesses," says Lunia. Their target business owners are phone retailers, dairy owners, kirana store owners, tailors, hair saloon owners, and others - segments that are not the focus area for banks and non-bank finance companies (NBFCs), for various reasons. First, lack of credit score. There is no or little taxation data, which would help determine the size of the loan. Moreover, the operational cost in processing these loans would be high for larger financing institutions. That's where Lunia's and Sachen's expertise works.

They use new technology to recieve, process and underwrite a loan. LendingKart looks at bank statements to analyse cash flows and a machine learning algorithm to assess creditworthiness. The key factors the company looks at include stability - the business has to be operational for at least six months - and a turnover of Rs 3 lakh. "We rely mostly on banking data. Our system then evaluates the statement and decides the loan amount, rate of interest and also gives an idea of loan tenure," says Lunia. There are other analytical parameters as ewll. Lunia shares, for instance, that 70 per cent of their borrowers are graduates. The turnaround time of processing a loan, which is a day or two, is faster than banks. The company also works with platforms such as Flipkart, Snapdeal, and Paytm to give working capital to their suppliers.

Bigger Share

Many fintech companies work with banks and NBFCs in loan sourcing. In fact, many work as digital distributors. But LendingKart, so far, has been lending from its book. It has relationships with banks and several NBFCs for debt financing. Mutual funds, too, have shown interest. "Two of the largest mutual funds have given money to us," says Lunia. This is not common as mutual funds generally put money in well established companies with higher credit ratings.

Many fintech firms find it a challenge to scale up. Capital infusions gradually bring down promoters' equity, while high growth needs continuous infusion of funds. LendingKart has a two-pronged strategy - have its own lending book, and tie up with banks and other institutions to generate business for them, which will earn them a fee income.

Challenge also comes from existing players such as banks and NBFCs that are digitising operations and using technology to underwrite. LendingKart also faces competition from small finance banks and other players that are aggressively looking at smaller loans but with an advantage of availability of low-cost funds. The arrival of peer-to-peer (P2P) players will also disrupt the MSME space. Lunia and Sachen are aware of the risks and are betting on machine learning and new technological tools to help them stay away from high-risk lending.

@anandadhikari