There’s a big gap between the haves and have-nots among borrowers in India. The gilt-edged ones with ready collateral and guarantors are chased by banks to take loans. Others have to run from pillar to post to process their loan applications in time for an urgent need, be it for a property purchase or a medical emergency.
CIBIL (Credit Information Bureau India Limited) was set up in 2000 to assess customer data from banks and other financial institutions. The CIBIL score has now become the gold standard for loans to be approved. But this has ended up excluding large numbers of people – CIBIL scores range from 300 to 900, but 80 percent of loans go to those with a score above 750.
Many of the sub-750 lot might be deemed credit-worthy if only the parameters to assess them were broadened. New technology employing big data and analytics now enables this. So Delhi-based fintech startupIndiaLends set out in March this year to capture and analyze a variety of data points for newer risk models and credit scoring. With loans depending more on data than securities and guarantees, financial institutions also get a much larger pool of potential customers.
“In India, organized lending is available only to a lucky few – mainly those with high CIBIL scores. The remaining borrowers are at the mercy of unorganized lenders and loan sharks, and end up paying outrageously high interest rates. We are here to change that and help both borrowers and lenders make better credit decisions,” says Gaurav Chopra, co-founder of IndiaLends.
Chopra, who has an MBA from the London Business School, and his co-founder, Mayank Kachhwaha, who graduated from IIT Madras, both worked earlier at international financial corporation Capital One.
Alternative data points
IndiaLends borrows some of the practices the co-founders found to be effective while working in London. “At Capital One, we used a lot of alternative data points like bank transactions and utility payments to build credit risk models that enabled instantaneous underwriting decisions,” Kachhwaha tells Tech in Asia. The scene in India was very different with lending primarily based on a single credit score from CIBIL, which made it hard for a majority of people to secure loans. So the Capital One colleagues decided to change the rules of the game with a new model.
After tying up with lending institutions and catering to 1,500 customers in the first four months of operation in Delhi, IndiaLends is now ready to expand to Mumbai and Bangalore. Today, it announced its first round of funding from Singapore-headquartered DSG Consumer Partners and angel investors, including Siddharth Parekh, son of Deepak Parekh, chairman of HDFC, India’s leading housing finance corporation.
Deepak Shahdadpuri, managing director of DSG, which has earlier invested in successful startups in India such as Zipdial and GOQii, says IndiaLends could transform a key part of the country’s financial services infrastructure. He adds:
This will reduce the cost, provide a better mechanism to price risk, and reduce time to assess credit.
The IndiaLends website promises to respond to loan applications in minutes. Those cleared for loans can expect to receive the money within two days. If IndiaLends stays true to these promises, it will reduce heartache for millions of borrowers in India who are used to running around for weeks, if not months, in pursuit of their loans.
Tech startups can play a big role in making the system more efficient by becoming a lending platform for large banks and financial institutions. The IndiaLends model is that of an online marketplace. It doesn’t take credit risk on its own books. “This ensures an unlimited amount of funds that can be provided to borrowers having different credit risk profiles,” says Kachhwaha.
Earlier this year, Capital Float raised US$13 million to give startups in India easier access to loans. Aye Finance is another new player serving startups, who typically lack the collateral to access institutional loans.
For now, IndiaLends is focusing on salaried and self-employed borrowers. But it may soon serve startups as well. “Analyzing the credit behavior of our self-employed customers will help us enter the SME space,” says Kachhwaha.
Author: TechInAsia.Com
Reposted By: Credit 4 Loan
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