Carving A Niche in Online SME Lending

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Lendingkart has developed a doctrine for credit comfort, wherein, it has identified proxies to evaluate a borrower, to enable online lending of up to Rs. 10 lakh for Indian SMEs. It counts its key differentiations to be a focus on simplicity (in application), up to 72-hour window to process loan disbursement, flexible repayment and renewal terms and minimal human intervention

When Harshvardhan Lunia co-founded Lendingkart in 2014, it was something of a second innings for him in the SME banking space. Having spent over six years in retail lending and corporate banking across HDFC, Standard Chartered and ICICI Bank, he decided to turn entrepreneur initially in 2011, with Domestic Finance & Investment Pvt Ltd, a firm that arranged alternative modes of financing for SMEs. “After working on the idea for three years, we realised that it is not scalable. That was also the year which saw a spurt in lending startups creating alternative credit mechanisms for the SME community,” recalls Lunia.


The company earns revenues through a processing fee and interest on loan (determined based on the credit worthiness of the applicant) and, its capital expenditure is also minimal given that it doesn’t need to invest in branch costs, overhead costs and more


But, unlike many startups out there which still evaluated companies on conventional parameters, Lunia and his co-founder, Mukul Sachan developed a doctrine for credit comfort. Meaning, they identified a lot of proxies to evaluate a borrower; such as business statement, industry segment, social profile and so on. “We would take all this information from the borrower’s ecosystem and process the application accordingly,” notes Lunia.

Traditional vs Tech-Based Lending

When the duo initially founded the business, the goal was to understand the needs of the SMEs instead of adopting a one size fits all approach of traditional lending. “Accordingly, we identified three to four components which were critical for borrowing,” adds Lunia. First among them was, the money has to be credited to the borrower’s account within 72 hours, because, typically many small lenders require money for immediate stock or raw material purchases. Second was, creating a simple application process as opposed to filling elaborate forms with details of financial projections. “We understood that they neither have the bandwidth nor knowledge to undergo this,” he adds. Lastly, the duo noted that the borrowers didn’t seek long-term loans, which could be covered in three to five years. Their (borrowers’) argument was that they come from a conservative family which is not comfortable with the idea of a loan hanging on their heads. Moreover, in the event of a mishap, they didn’t want the loan burden to fall on their family members. “Eventually, we arrived at a model which could cater to SME requirements while also enabling us to earn handsome profits,” adds Lunia.

The company earns revenues through a processing fee and interest on loan (determined based on the credit worthiness of the applicant) and, its capital expenditure is also minimal given that it doesn’t need to invest in branch costs, overhead costs and more. With a presence across 397 cities in 28 states, Lendingkart has thus far completed 5,600 loan disbursements, with working capital loans ranging between Rs. 50,000 to Rs. 10 lakh. “Once we secure data to evaluate a prospective borrower, we disburse the loans through our lending partners within three days,” adds Lunia.

The Future Game Plan

Lendingkart has so far raised two rounds of funding totalling US $41 million from a string of notable investors such as Saama Capital, Mayfield Fund, India Quotient, Darrin Capital Management, Bertelsmann India Investments and individual investors such as Ashvin Chadha and Shailesh Mehta. With an acqui-hire of Kountmoney, an online lending marketplace, in October 2016, and the upcoming extension of its credit risk analytics software to financial institutions (from 2017), Lendingkart is creating a steadfast approach to expand its reach in the online SME lending space in India. As its co-founder Lunia puts, “Our goal is to enhance our brand image, create more awareness around our products, and aim for market leadership position in the coming years.”


Snapshot

Founders: Harshvardhan Lunia and Mukul Sachan

Year: 2014

Investors: Saama Capital, Mayfield Fund, India Quotient, Darrin Capital Management, Bertelsmann India Investments and individual investors such as Ashvin Chadha and Shailesh Mehta

Impact: 5,600 loans disbursed across 22 states

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