Revolutionizing Lending: Short Tenor Working Capital Loans and OCEN

Published Feb 28 on LinkedIN

As a lender, do you want to focus on a segment worth 17 Lakh crore?

Let me explain how the existing market works. How will banks give loans to small businesses?

If there is growth in revenue for the last 2-3 years of the business, the bank will give a one-year working capital limit.

Do you know the actual data of India? Let’s take GST.

– Only 15% of the MSMEs have had a consistent increase in their revenue for the last 2 years.
– You know how many of them have the credit limit already – 12%.
– So the gap is only 3%.

To acquire borrowers, NBFCs/banks should NOT go after this 3%. They’ll have to go after 85%.

Please don’t make the mistake we did with BNPL today, “Giving One Year Working Capital Loan,” which is the conversation today in the industry, and that’s not the answer.

Lenders can’t give you a one-year loan, but lenders can give you a three-month loan:

Because lenders know you’re not going to go out of business in three months and they can see their outstanding invoices in GST.

Most of the time, if you give a three-month loan to a business, that is a valuable loan:

1) If he manufactures chairs, he can buy raw materials, and sell them in three months.
2) If he is a PC assembler, he can buy PC kits, assemble PCs, and sell them.

BNPL went for a toss because the loan is on the consumption side, but here it’s on the income generation side.

The answer is “Short tenor working capital loan” to these businesses.

But most of the NBFCs are not willing to do this. Why?

The problem is let’s say the lender’s spread is 5%.
Loan amount – 1 Lakh.
5% spread – Rs 5000 is the lender’s revenue.
Rs 2000 – Lender has to pay for acquisition, processing, disbursing, collection, regulation, etc.
Short tenor loan (Quarterly loan) – 5% spread becomes – Rs 1250 (5000/4) – lender revenue.
Lender can’t make money here as the cost itself goes to Rs 2000.

So what’s the solution? OCEN.

It’s not Tech that has made it happen. It’s a new way of doing acquisition, processing, collections, disbursement, and real-time regulation.

It’s a completely new business model change going to unlock a market of 17 lakh crores, which is twice the size of our retail lending book.

#manispeaksmoney

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After smartphone penetration, people are not watching their SMS at all. They use SMS only for OTP related transactions. That’s it.

But What can a Lender see in your SMS after you consent to them?
Lender can see income, expenses, and any other Fixed Obligation like (EMIs/Credit Card).

1) Income – Parameters like Average Salary Credited, Stable Monthly inflows like Rent

2) Expenses – Average monthly debit card transactions, UPI Transactions, Monthly ATM Withdrawal Amount etc

3) Fixed Obligations – Loan payments have been made for the past few months, Credit card transactions.

It also tells the Lender the adverse incidents like
1) Missed Loan payments
2) Cheque bounces
3) Missed Bill Payments like EB, LPG gas bills.
4) POS transaction declines due to insufficient funds.

A massive chunk of data is available in our SMS (more than 700 data points), which helps Lender to make a credit decision.

#lendtech #fintech #manispeaksmoney

An interesting insight on vehicle loans for lenders.

A trend we are seeing today – the first-hand vehicle ownership is decreasing with time. Why? People are upgrading their vehicles in every few years because of technological advances. And, this can be seen more with the millennial generation.

So, what should a lender do in terms of financing?

– Estimating the residual value of the vehicle at the start of the financing period.
– Charging a borrower only for the residual value (which is the difference between the value after a few years and the current value)

Example: A bike currently is INR 1 lakh. You want to buy the vehicle for 2 years. A lender will estimate the residual value of that bike today and what it would be after 2 years. If the estimated residual value = INR 45,000, the lender will charge you only that (say, INR 55,000 with interest for this instance) during your tenure.

At the end of 2-year period, you have 3 choices:
1. Return the bike and upgrade to a new one without going through the struggle of selling it.
2. Pay the lump sum remaining amount to own the vehicle outright.
3. Extend the financing and own it by keep paying the EMIs for the remaining amount of the vehicle for the next 12 or 18 months.

Benefits for the borrowers?

– Flexibility to use a vehicle and upgrade to a new one.
– Affordability to not pay for the complete value of the vehicle with the intention to use for a lesser amount of time.
– Convenience in owning the vehicle.

Say goodbye to the old lending option and embrace the new way of financing for vehicle by lenders!

#vehiclefinancing #vehicleloan #lending #manispeaksmoney

How many of us know this?

1) Tiktok does Lending ( is it an entertainment company or social media company or a fintech company?
2) Youtube China does Lending
3) Top 100 internet companies in China(no matter what business they are in) do Lending

The team which was heading Lending in Tiktok was the Advertisement team. If we do Ads, we do X no of revenue. But if we do lending, we’ll get X+30% more revenue. This is on the same Ad spot.

Ad team has transformed into a lending team, and in today’s world, it’s possible because the subject matter expertise can be put in as an API and given to you.

Embedded Lending as a service is becoming popular in India too, and I am happy to be part of this ecosystem.

#lendtech #fintech #tiktok #manispeaksmoney

In India, has everybody access to loans?

The answer is No. Only the top 10 crore people have access to many credit products in India. Almost all Banks focus on this market.

Once you go beyond that, the credit access rate has dropped significantly due to multiple factors.
1) Customers who are having low income(30-40K per month)
2) Not earning from an employer who belongs to Category A or B
3) Not from Tier 1 or 2 cities

NBFCs and Fintechs focus on the above segment, pushing another 10 crores of people.

But in India, 70 crores more people are formally or informally employed, which still needs to be tapped.

#manispeaksmoney #digitallending

Revolutionizing Lending: Short Tenor Working Capital Loans and OCEN

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