Non-banking finance company Lendingkart Finance Pvt. Ltd, formerly Aadri Infin Ltd, is one of the most-funded startups in the alternative lending segment in India. It has mopped up about Rs 340 crore ($49.6 million) from a host of investors, including Yes Bank, Mayfield India, Saama Capital and Anicut Fund. With a strong presence in the SME lending segment and a sound technology platform, it aims to break even by March 2018. In an interview with VCCircle, Lendingkart CEO Harshvardhan Lunia shares the company’s road map to becoming one of the biggest players in the sector and why it aspires to form the backbone of the financial services sector’s technology infrastructure. Excerpts:
What’s Lendingkart’s road map for 2017? How much of the disbursal target have you achieved?
We will be disbursing Rs 1,500-1,600 crore in 2017-18. It will be a three-fold rise over the previous year. However, what we essentially need is Rs 750-800 crore, while the rest will come from the churn of our short-duration loans.
Our monthly loan disbursal rate is $10 million (about Rs 65 crore). It is easy to disburse more loans, but understanding the consumer behaviour (their repayment capabilities) before lending takes time. Therefore, so far, we have done business at a lower scale. But now we are in a position to scale up as much as possible over the next two years.
You had also mentioned about raising Rs 500 crore in debt.
Apart from the first Rs 500-crore debt fundraising exercise, we will also look to raise another Rs 500 crore in debt. We have initiated talks for this, but the process will take some time.
You have been raising a lot of debt from banks of late. How has their perception towards alternative lending platforms changed over the years?
NBFCs understand our business better by virtue of operating in the same field. However, banks, while understanding the business, prefer a certain scale before they start lending (three years by conventional norms). In that sense, we are no different in their eyes.
So, eventually will you be looking to raise more funds from banks and less from NBFCs?
Banks offer us lower-cost loans, but the process is more time consuming. They also operate within certain limitations. NBFCs are quicker with their disbursals.
For instance, Yes Bank has given us Rs 50 crore, but may not want to extend a loan of, say, Rs 500 crore. Therefore, when we raise more money we might have to go with 10-12 players – both NBFCs and banks – and keep the costs down as much as possible. Hence, it is more important that we keep all channels open.
Even large NBFCs, which rely on banks for most of their borrowing requirements, keep auxiliary channels, such as private equity funds and ultra-high-net-worth individuals, open to raise funds. It is no different for us.
Do you have plans to increase the ticket size of your loans, which is capped at Rs 10 lakh?
About 93% of our loans are less than Rs 10 lakh, and the Rs 50,000-10 lakh range remains our sweet spot. But, sometimes we do disburse loans of Rs15-20 lakh if there is a strong reference or recommendation. Our USP will be to remain a sub-Rs 10-lakh lender.
You have mentioned that your non-performing assets are about 2%. How does it compare with conventional lenders?
For banks, NPAs constitute 5-6% of their loan books. Maintaining NPAs at 2% is a significant achievement given that we have already disbursed loans to customers from across 680 cities. More so, as physical verification is an integral part of any lending business. But, we have not met or interacted with any of these borrowers in person. I guess, this speaks volumes about the quality of our data analytics and technology platform.
How do you handle defaulters?
The risk is covered in the product design itself. When it comes to defaults, one has to factor in fraud, lifecycle event risk and business risk. The chances of someone defaulting Rs 4-5 lakh are far lower than someone who has borrowed, say, Rs 1 crore. This is one of the fundamental reasons why we have kept the loan ticket size small. This allows us to absorb the defaults better. Short-term borrowers are the best as they have more to lose by not repaying the loans – the digital history and the bad credit score that comes with it is not worth it.
Tech is a major component of your business operations. How much of your budget allocation goes towards it?
Almost 25-30% of our budget goes towards technology. The tech team accounts for around 35% of our total manpower while two-thirds of our resources work on the lending business.
Do you have an inorganic strategy in place to ramp up your tech capabilities?
We have one of the best tech capabilities in the digital lending space by virtue of being an early mover. Most of it is proprietary. However, two or three years later, when we look at newer products and find that someone has done an exceptional work in that space, we will consider acquisitions.
Do you have plans to foray into new segments in the financial services sector? Maybe in the long term?
In India, there are only four broad problems to be solved when it comes to financial inclusion – payments, insurance, credit and investment. If we think we can use our data and technology capabilities to create a sustainable business, we may consider expanding. But, before that we will look to have a solid footing in the SME lending space.
Lendingkart Finance, the loan underwriting arm, constantly needs funds. But what about Lendingkart Technologies?
Lendingkart Technologies essentially contains tech, digital marketing and analytics resources. Hence, most of the funding raised by the entity has gone into upgrading the platform. However, most of our current infrastructure creation has been towards Lendingkart Finance.
We aspire to offer our technology capabilities to NBFCs and banks. Some of them have already approached us with proposals and, once we get that going, Lendingkart Technologies will also start generating revenues. In fact, we look at it as a potential SaaS product company.
Does Lendingkart Technologies need any more external funding?
The funding we have raised is huge and takes care of the requirements at least for the next five years. As we are building more of a knowledge capital, the only significant cost component is salaries.
Any crucial hires? Maybe in the top leadership?
We invested a significant amount of time making crucial hires over the past six months and the top leadership will remain. However, we will continue to look for the right talent for the tech and analytics vertical.
Will you consider moving beyond SMEs to expand your customer bracket?
Every lender operates on his strengths. Ours happen to be SMEs, which also remains one of the underserved segments. If we start expanding to other customer brackets catered to by existing players, we will not be able to compete with them. The SME segment, by itself, is a multi-million dollar market opportunity, and we will take close to a decade to establish ourselves. Maybe after that, we will consider foraying into newer segments.
Most players tend to be asset-light. What was the business logic and strategy behind going asset-heavy?
Before Lendingkart, I was running a marketplace model for lending. During that stint, I realised that it was not a sustainable model as there was an element of heightened dependence on vendors (read existing financial products).
That experience led to the decision of Lendingkart having an NBFC of its own, which would allow us to design our own products. Besides, there were no other players lending exclusively to this segment. There was a gap in the ecosystem. There was an opportunity to be cracked, given that it had the potential to create a sustainable model.
Will you continue to operate the same business model?
Two years down, we will diversify as a marketplace model, and may even get into the peer-to-peer lending space. However, as and when we venture into that space, we will take on board vendors who will operate on our terms, and not the other way around – something that is prevalent now.
In fact, we will start a pilot with one or two players within the next six months. However, this year, the lending will predominantly be from our books. These plans will take a larger form in 2018-19 and 2019-20.
Do you have plans to expand your offline presence?
We do not need to. Ahmedabad houses the operating office for our NBFC arm, while the registered office is based out of Mumbai. The tech hub operates out of Bengaluru. We also have a small office in Delhi.
When will you start making profits?
The lending arm of our business will turn profitable by March 2018. However, Lendingkart Technologies will take some time, given that we will continue to burn some cash on account of investments in technology.
How many consumers have you served so far?
We have disbursed roughly 12,000 loans to SMEs from across 23 segments. Most loan applicants were from apparel, clothing and accessory, FMCG, computers, mobile and related accessories, electronic appliances and industrial supplies sectors.
Which are your top performing markets?
Bengaluru, Mumbai, Hyderabad, Pune and Surat have been our top five performing markets.
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