Loan Startups Hit Payday With Changing Borrowing Habits
There’s a funding surge to alternative lending startups this year that is reminiscent of 2015’s food tech boom. More funding has happened in in the first four months of 2018 than the whole of 2017.
Online lenders have caught investor interest by providing access to easy, credit-free loans to individuals and small businesses.
According to analytics firm Tracxn, lending startup in 22 funding rounds, raised more than $200 million till April 2018, already whizzing past the $196 million the sector received in 61 funding rounds all of last year.
One of the reasons for investor interest is that retailers have taken to online lenders who give collateral-free loans instantly on easy payment terms. Minimal paper work is required and the loans can be for as little as Rs 50,000, which is all a small business needs for daily turnover. These are the borrowers that banks are wary of dealing with as they don’t have systems to assess their credit worthiness..
Nitin Sharma, active angel investor and ex-founding principal at Lightbox Ventures.
“All these credit categories have been grossly underserved in India. Traditional lending channels are often closed to these segments,”
These are the borrowers who have usually approached non-banking finance companies (NBFCs).
According to research firm CB Insights, India has seen the second highest number of alternative lending deals after the US since 2015. In India, the number of deals for the first four months of this year haven’t seen a significant jump, but the deal size for each round has, implying that investors are comfortable signing big cheques for lending startups, especially those serving small and medium enterprises (SMEs).
Anuradha Ramachandran, investment director at Omidyar says,
“We are seeing a second wave of investments in digital lending.”
“Now, the first generation of startups have established themselves and are getting money to scale up.”
The first wave was in 2015-16 when investors were still trying to figure out what would work in online lending.
Omidyar has invested in Indifi Technologies, Zest Money, Intellegrow and NeoGrowth which provide loans to individuals and SMEs.
Gaurav Hinduja, co-founder and MD, Capital Float says,
“We have been working with Amazon, financing sellers on their marketplace for some time. There are a lot of small sellers on e-commerce platforms who need quick and small loans.”