We are a rare fintech that continues to focus on ‘MSMEs only’: Lendingkart CEO
The last three years have been busy .
Founded by Harshvardhan Lunia and Mukul Sachin in 2014, the MSME-focused lending platform had long provided short-term working capital loans and other financial products to SME borrowers through its NBFC arm, Lendingkart Finance Limited. Now it has positioned itself for a complete overhaul by focusing on co-lending and become the technology partner of major financial institutions.
The move has coincided with the spring of lending in the fintech industry, especially after the pandemic. Instead of taking full book exposure, co-lending allows new age NBFCs and fintechs to partner with banks to help them deploy their funds and provide loans to the underserved. An estimated 80% of the capital comes from banks that have greater access to cheaper loans (required deposits), while the NBFCs (along with technology partners) become the consumer-facing entities and take care of purchasing, underwriting, product innovation and correspondence for the consumer.
This creates a win-win situation, as the banks are able to have a greater reach while the NBFC player is able to extend loans at lower rates, reducing risk exposure and thereby reducing loan losses.
Lendingkart is now building its core business model around co-lending, which has come a long way from being just a buzzword, especially after being recognized by the Reserve Bank of India (RBI), which recently set guidelines for digital lending. Startups and banks have collaborated on lending in niche segments to create technology-driven innovative products and increase the loan portfolio.
Your story talked to Harshvardhan Luniaco-founder and CEO of Lendingkart, to understand the current business order, challenges, IPO plans and its positioning in the market.
Edited excerpts:
Your story [YS]: How do you view RBI’s latest guidelines for digital lending?
Harshvardhan Lunia [HL]: The regulator (RBI) had to set up the ecosystem in the long term for digital lending. Any ecosystem that is built will have people who get some freedoms and some who don’t. So RBI has clearly defined the roles and responsibilities.
They (the guidelines) came as a surprise, but the work had been going on since last year, and the working group took on board all the recommendations from the industry. There are some open points that are still being worked on and I feel that the guidelines are quite progressive and good for the ecosystem.
[YS]: Do digital lending platforms or apps have to bear large costs to comply with these mandates?
[HL]: If you look at the regulated entities, they have done everything that is asked while working with other regulated partners, banks, financial institutions and so on. For them, including Lendingkart, it will not increase any costs.
But if you look at the non-regulated entities or service providers, they have been working with the partners but without frameworks. With the new guidelines, many banks would now do deeper due diligence before entering into a partnership.
Second, data storage was the biggest moat of the majority of lending platforms, which provide a critical service to banks when it comes to underwriting loans. With the new guidelines, if they are not going to store the data of the consumer, how will they provide their services? And when the data is gone, what will be their moat? Will they be able to build a business with the efficient enough services they provide to the banks?
All of this can increase their costs.
[YS]: Lendingkart has changed its core business model from direct lending to co-lending. How’s it going there? Have you slimmed down your loan book?
[HL]: The co-lending business has been an ongoing work for us for a long time. When we started Lendingkart, the clear idea was to serve the underserved segment and provide loans to micro and small businesses. We have always wanted to build the “capabilities” – which distribution, algorithm-driven underwriting and then fundraising– to reach out to them (MSMEs), but at the same time we also knew that we would have “limitations” when it comes to distributing this money.
The money happens to be the depositors placed in all the banks. We always wanted to become a platform that would help these institutions reach out to the smallest consumers through our platform.
We launched our co-lending platform in November 2020. Post the second wave of COVID-19, the business took off significantly as the concept of collaboration entered a massive form.
During October-November 2021, we did almost 30-40% of our business co-lendingand now, almost 90% of the business enters into the same. This year we will disburse over Rs 4,000 crore in loans. We have 16 live partners on the platform, including private banks and NBFCs, and seven in the pipeline.
Our business over next 12 months is already pre-sold to the pipelines.
[YS]: Will the joint loan model not reduce the business margins (commission vs interest) or limit the scope of Lendingkart’s business?
[HL]: It is more important that the customer profits lower interest rates. It may appear that lower interest rates will reduce our income, but the drop in costs further improves profitability. So it’s a win-win – customers get better prices and our partners get access to a larger customer base through our platform.
All this happens while we are left profitable. In fact, we have recorded a third profitable quarter in a row, with growth in both the top and bottom lines. And we have only scratched the surface. A large number of MSMEs are yet to discover these benefits.
[YS]: In addition to distribution/co-lending, do you want to look at the infrastructure side of things, like embedded finance?
[HL]: We are working on platforming our services. We have launched our 2gthr and xlr8 platforms, and our partners have already started to take advantage of them. There is so much we can do for the entire industry. We have learned a lot and built technology for ourselves, and now, for our partners. There’s no reason why we can’t take our platform to a wider audience.
[YS]: Any plans to enter BNPL as well?
[HL]: BNPL is a consumer segment. Overall, we have not built anything in this segment and have been focused on MSMEs, and will continue to do so. It will be our bread and butter. We have been one of the rare fintechs that have continued to build only in the MSME segment and not dwell on other segments. This segment has done fantastically well for us and we will continue to focus on this.
[YS]: What are the plans for an IPO?
[HL]: We plan to go for an IPO in next six to eight quarters. We have been profitable for the last three quarters, and registered NOK 50 million in profit last year at group level.
Our credit limits are healthy. Our claim for the entire FY23 is already secured. When it comes to products, we are very keen that more people should experience our platforms. The financial ecosystem is ripe for collaboration. We want to play a big role with our platform products.
