Digital lending platform Lendingkart wants to expand into a larger technology play, side-stepping from its core lending business. The platform, which caters to small businesses lending to customers digitally, now wants to work in tandem with traditional lenders bringing their technical abilities to the table, helping them underwrite loans and source customers.
Through this partnership, the attempt would be to cater to a wider cross-section of MSMEs and also offer cheaper loans to these businesses.
“We can create APIs of our own platform to integrate with larger lenders who can lend through us,” said Harshvardhan Lunia, co-founder of Lendingkart, while speaking with Moneycontrol.
“We will enter into a co-lending model with these banks and NBFCs as well, so we can bring some skin in the game and give comfort to our lending partners,” Lunia added.
This is an interesting move for a startup like Lendingkart which had historically been keen on a strong technology play in its business of giving out MSME loans. But now the platform wants to push forward its technology capabilities and prioritise this over building its loan book. Lendingkart already has a loan book of Rs 2,500 crore.
Explaining the rationale behind this move, Lunia said that as a platform Lendingkart gets around 3.5 lakh registered applications and 50,000 actually complete the registration process. Of this only around 12,000 to 15,000 applicants actually get a loan sanctioned by Lendingkart. By partnering with banks and NBFCs, Lendingkart intends to cater to a larger pool of customers.
“We already have a Rs 2500-crore credit line from our lending platforms to be lent to small and medium businesses,” said Lunia.
COVID-19 has played a critical role in pushing Lendingkart down this way, since lenders want to aggressively digitise their loan origination and credit underwriting models, expertise Lendingkart can bring to the table.
Best of the two worlds
They want to develop credit intelligence as a service which can be adopted by banks and larger non-banking lenders. The platform will help banks underwrite applicants, predict default rates, red flag frauds and source good quality borrowers for these traditional lenders.
“If certain borrowers are not catered to by the banks, we can lend to them through our own NBFC business since we are underwriting them anyway and we have access to the data of the borrowers as well,” he said.
The Reserve Bank of India is also in favour of pushing this co-lending model in order to drive financial inclusion. In a notification issued on November 5, 2020, the central bank said that the primary focus of the 'Co-Lending Model' (CLM), is to improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost.
As a digital lending platform, Lendingkart cannot extend loans cheaper than 16-18 percent, even if it is a good quality borrower. The central bank feels that if banks can join these platforms to lend to these customers, they can offer cheaper rates. Banks have a lower cost of funds compared to NBFCs and digital lenders.
A strong fintech lender
Born in the middle of the fintech evolution in the country, Ahmedabad-based Lendingkart is one of the largest fintech lending startups, catering exclusively to small and medium businesses. They offer loans in the range of Rs 50,000 to Rs 1 crore for a tenure of up to three years.
It was founded by Mukul Sachan and Harshvardhan Lunia back in 2014. Lendingkart has raised more than Rs 1,000 crore from investors like Fullerton Financial Holding, Bertelsmann, Mayfield India, Saama Capital, Sistema Asia, India Quotient and others. Sachan moved on from the company in 2019. The company roped in ex-Myntra top executive Mithun Sundar as its chief executive of the finance business.
As per numbers shared by the company, Lendingkart has evaluated up to half a million customers, disbursing close to one lakh loans to more than 90,000 small businesses. It has catered to businesses across 1,300 cities in the country. From small industrial clusters to coaching classes, shops and traders, Lendingkart counts all types of businesses as its customers.
To strengthen its technology play, the startup has roped in ex-Flipkart executive Giridhar Yasa as its chief technology officer and Mahesh Parashar as its head of collections. Parashar joins the group from Aditya Birla Finance. Sameer Nagpal will be heading its revenue operations and disbursement, joining the company from Airtel Payments Bank.
The Covid Effect
The COVID pandemic has had a massive impact on the lending ecosystem of the country. While banks are already reeling from massive NPAs, even NBFCs are bound to see their profitability taking a hit because of loan impairment and lower credit demand, said the Reserve Bank of India in a recent report.
Lendingkart just like other NBFCs has also felt the impact of COVID-19. While collections have been hit, Lunia said that around 8 to 10 percent of its loan book has been restructured currently. There is a demand from borrowers for restructuring of loans, so that they can repay over a longer tenure and lenders also do not have to show a big hit on their balance sheet.
“We have a capital adequacy of 40 percent, hence there is enough capital buffer for me to manage this crisis, we have also been proactive in reaching out to our customers and helping them out through the crisis,” he said.
On the asset side, the situation, Lunia feels, will become clearer by April May when the repayment cycles will start getting over and the actual number of stressed accounts will come to the forefront.
On the demand side, Lendingkart has seen some level of resumption of business from October onwards, but credit demand is going to be muted going forward. However, Lunia agreed that the overall MSME sector has been hit majorly and it will take time to recover from this blow of the pandemic.
“In December we recorded 60 percent of our pre-COVID business volumes and I believe that slowly there will be recovery from here on,” Lunia said.