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.


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