IndiaLends formula for fintech disruption: tailored rates, quicker loans using risk analytics

IndiaLends, set up in March this year to help individuals as well as small businesses get unsecured loans, is gaining traction fast. The Delhi-based startup recently expanded to Bangalore, Mumbai and Pune, tying up with 10 financial institutions to provide loans to those who don’t meet the usual eligibility criteria. Today it announced a US$1 million bridge round of funding by existing investors led by Singapore-headquartered DSG Consumer Partners. This comes less than three months after its first round of funding and will be used to expand into eight more Indian cities by the end of the year.

IndiaLends uses proprietary underwriting algorithms to build risk profiles of customers based on their bank transactions, utility payments, and the like. This brings large numbers of excluded people and businesses into the credit-worthy pool. In India, 80 percent of loans go to those with a CIBIL (Credit Information Bureau India Limited) score of over 750. But many in the sub-750 lot (in a 300 to 900 range of scores) would be considered eligible if new data points were to be used – and that’s what IndiaLends brings to the system.

IndiaLends co-founder Gaurav Chopra cites the example of a small furniture shop in Delhi that was finding it difficult to get a loan from banks and established lenders. “Within two days we were able to secure him a collateral free loan of INR 400,000 (US$6,100) to expand his business,” says Gaurav, an MBA from London Business School who earlier worked for international financial corporation Capital One.

Building a new credit score

Interestingly, IndiaLends is not only helping such customers get access to credit, but also build their credit scores so that they are eligible for bigger loans at better terms in the future. “Many of our customers have noticed an improvement in their CIBIL scores,” explains Gaurav. “Earlier too, money lenders were lending them money but their loan performance wasn’t getting reported to the credit bureau. So even though they were paying back on time, their credit scores weren’t improving.” Now, their performance on the loans they take through IndiaLends will go into their CIBIL score.

“Our vision is to get rid of the unorganized lending sector in the country and bring more and more people into the fold of formal channels of credit, using better underwriting techniques and technology,” says Mayank Kachhwaha, co-founder of IndiaLends. An alumnus of IIT Madras, Mayank previously worked with Gaurav at Capital One.

Customized loan rates based on profiles

The new lending model with the use of technology has speeded up loan approvals and disbursals. Deepak Shahdadpuri, managing director of DSG Consumer Partners, says: ““In a very short period, IndiaLends processed 8,000 loan applications and disbursed INR 30 million (US$500,000). August loan disbursal numbers were 300 percent of July and 400 percent of June numbers.”

The fresh funding will also be used to build customized credit products, instead of a one-size-fits-all model. “For example, if you take credit cards in the country, you will see that irrespective of the profile, everybody gets the same interest rate – you, me, our parents, people who have been working for the last 35 years, everybody will have 3 percent monthly interest rate which comes to 42 percent per year. That is one product for all,” points out Gaurav.

“We are saying that based on customer-level analytics – who you are, where you are studying or working, how much you are earning, what is the stability you have with regards to your home ownership, or your mobile bill repayment records – all these come into somebody’s credit report and hence, they should be offered a customized product. So anybody who is capable of repaying a loan, and has credentials to borrow, should get that loan he wants at the best possible rates. And the time to get that loan should be reduced. That is what we are now focusing on in our new suite of products,” he tells Tech in Asia.

BankBazaar competes with IndiaLends as a marketplace for loans. What sets IndiaLends apart is its tech – especially the IndiaLends Score for customers based on its proprietary risk analytics using multiple data points.