Investor queue gets longer outside micro loan startups.
Startups helping college students and young adults get small loans, typically below Rs.1 lakh, are seeing early interest from investors as fin-tech, or financial technology, emerges as one of the hottest sectoral themes for this year.
By Shashwati Shankar & Madhav Chanchani, ET Bureau | Mar 08, 2016, 05.32 AM IST.
Finomena, a Bengaluru-based lending platform for students, recently raised an undisclosed amount from Matrix Partners India and individual investors, including InMobi cofounder Abhay Singhal. The startup has partnered with non-banking financial companies to disburse personal loans of Rs 5,000 to Rs 1lakh to students at interest rates of up to 20%, chiefly so they can buy products such as laptops and mobile phones.
Founders Riddhi Mittal and Abhishek Garg said they are eyeing a target group of more than 20 million college students in India.
To minimise the risk against payment defaults, Finomena will gather information to gauge the “credit worthiness of these students through government sources, Facebook, Googleand every other digital footprint, 60% of this automated,” said Mittal. The company will eventually collate more than 1,000 data points to determine the credit worthiness of each borrower, he said.
A slew of other fin-tech startups, too, have recently raised money from established investors— such as Quiklo from Accel Partners and Buddy from Blume Ventures. With consumer spending anticipated to steadily increase in India and with more disposable money available in the hands of young shoppers, investors are actively exploring opportunities in the online consumer lending space, where 35 new companies have come up since January 2015, according to startup data analytics firm Tracxn.
OPPORTUNITY FOR STARTUPS The low penetration of credit cards and personal loans in the country offers significant opportunity for startups like Finomena, although the spectre of bad loans can be daunting as India’s public banks grapple with crippling loan defaults.
The startups, however, do not lend directly but partner with banks, microfinance companies and NBFCs to extend loans to borrowers.
Several of these firms also require the borrowers to declare what they want the loans for.
“India is very underpenetrated on personal consumer credit and only mobile can solve the data and identity issue,” said Vikram Vaidyanathan, managing director at Matrix India, which has also invested in payments gateway Razorpay and pre-paid cards provider ItzCash. “Students are very early adopters and that is why we are investing in Finomena, which is focused on that segment.”
The venture capital firm plans more investments in the broader financial technology sector, he said.
The Indian market for loans to college students to buy consumer products is estimated at about $8 billion (about Rs 53,750 crore), according to Gurgaon-based Red-Carpet, a micro-lending startup for students that’s backed by Silicon Valley incubator Y-Combinator.
“There are 33 million students enrolled in higher education in India, 20 million in urban India.
Most of them need one mobile or laptop, the expenditure of which would come up to around $400 annually,” said Kartik Venkatraman, founder of RedCarpet, which began operations in November. The company arranges loans of up to Rs 60,000 per borrower, with the average loan size at Rs 5,000 to Rs 8,000.
Buddy, which raised $500,000 in February, takes a commission of 3% to 10% from its ecommerce partners Amazon, Flipkart and Snapdeal.
The company provides interest-free loans to students in the 18-23 years age group on products in select categories such as fashion.
By ET Bureau.