Often, entrepreneurs get their business ideas from issues they witness in their day-to-day lives. Mumbai-based FlexiLoans is one such. The online lending platform offers quick and easy loans to those who do not have any credit history but have a good business record.
The four co-founders — Deepak Jain, Ritesh Jain, Abhishek Kothari, Manish Lunia — are all in their mid-30s, and had initially met at the Indian School of Business (ISB) where they were in the class of 2009. After they graduated, they went their separate ways, but kept in touch.
Deepak Jain worked in investment banking and management consulting segment with Axis Capital and JSW. Ritesh Jain spent time in the start-up space, and was Housing.com’s chief financial officer. Mr. Kothari has 11 years building data and analytics strategies behind him. And Mr. Lunia has seen the credit space up close, with Aditya Birla Financial Services.
For the lack of a credit score
“We have seen how difficult it is for people without prior credit history to get loans,” Mr. Lunia says. They recall encountering many young entrepreneurs with good ideas and potential, but unable to get a loan because they had never taken one before or even used a credit card, and therefore did not have a credit rating. And there were young entrepreneurs who were growing family businesses at more than 50% a year but couldn’t get loans because assets were in the name of an older family member. “Take a stationery shop that needs money in four to five days to cash in on the schoolbook-buying season,” Mr. Lunia says. “Most banks would take a month or two to approve the loan application, and by then the opportunity would have been lost.”
Ritesh Jain says, “In more advanced markets, for example in the USA, there are alternate platforms that lend at higher rates based on cash flow statements. In India, that need had remained unaddressed except by the informal sector.” The friends realised that this large NTC (New To Credit) space offered a huge business opportunity. They estimate that there are close to 50 million businesses that are deserving but do not get proper and timely access to credit. They decided to service it.
Tackling the demand
In August 2015, they began ideating about what the company would do precisely, and in January 2016, they registered FlexiLoans, which offered loans within 48 hours (assuming all documentation was in place) to small and medium-sized businesses to meet their working capital requirements.
In April last year, they made their first loan: ₹23,000, to an Uber driver in Bengaluru. Today, the company gets 2,500 applications every month. In just over a year, they have disbursed 5,000 loans, with the average size being less than ₹5 lakh. The smallest amount they have lent is ₹7,500 — with around 40 to 50 ₹10,000 loans — and the largest has been ₹50 lakh. Currently they disburse between ₹10 crore and ₹20 crore per month, and the company has grown over 15 times in loan sanctions over the last seven months.
The FlexiLoans approach mixes data analytics, technology, tie-ups and funds. Strategic tie-ups with leading e-commerce players like Flipkart and ShopClues, among others, helps them target the nearly 20 million sellers on those marketplaces. “These partners also share data on businesspersons who need loans, including reviews and ratings, which helps us know potential borrowers,” Ritesh Jain says. “We rely on cash flow documents to get an idea about repayment capacity. We also have tie-ups with collection and pick-up agencies.”
Being a player in an underserviced niche allows them to charge a higher rate of interest: their rates range between 1%–2% per month. They also get revenue through one-time processing fees, typically up to 2% of a loan.
Despite dealing with people with no credit history, they have not had a single default, just four or five delayed payments. It has been gratifying, they say, to see businesses grow with their help. Mr. Lunia cites a 23-year-old Chennai borrower whose first loan was ₹75,000, and who over nine months, gradually moved to a loan of ₹4 lakh. “Nearly 80% of our borrowers saw a 30% increase in sales,” he says.
Securing the foundations
Over its first year in business, FlexiLoans has also partnered with a finance company to enhance its reach and get new customers in the lending segment, which is estimated to be a $300 billion market. It also has alliances with some banks in the co-lending space (where the company and the bank each lend a part of the loan). It has also partnered with companies that make point-of-sale machines, to get more information and access to merchants, another growing market: government data shows that the number of POS terminals increased by one million in the last six months.
In September 2016, FlexiLoans raised ₹100 crore in seed funding — the highest for any Indian start-up till date — from marquee angel investors including Sanjay Nayar, chief executive officer (CEO) of KKR India and Vikram Sud, former head of operations and technology at Citibank.
Next on the agenda: new products, like supply chain financing and invoice discounting. And from its current 70-city reach, it plans to expand to 200 in the next 18 months, and to more than double loan disbursals, to around ₹500 crore.
The pitfalls of lending platforms
Manish Kumar, co-founder Grex & Realx, says that such lending platforms do valuable business, but there are pitfalls too. “The base data of such entities comes from marketplaces, and we are seeing big names going through tough times. What then happens to the sellers on such platforms? The lending entity will suffer as they mostly do vendor financing. They are surely better than the traditional NBFCs. But then you may never know their NPA scenario.”
Kunal Nandwani, founder, uTrade Solutions, and a director of Chandigarh Angels Network, is “cautiously optimistic” about the segment. He feels that it is too crowded and one needs to be too aggressive to grow. “You can only scale at a certain pace, and once the segment attains size it will also become highly regulated. In that scenario, technology [alone] would no longer be disruptive.”
FlexiLoans
Founded : January 2016
Founders : Deepak Jain, Ritesh Jain, Abhishek Kothari, Manish Lunia
Funding : ₹100 crore
Employees : 60
Website : flexiloans.com
