Sector Analysis of Micro-

lending (Fintech)
Project Submission for Private Equity and Venture Capital

Submitted By: Marvin Capital (Group 7)

Sonali Saini (M123-19)
Vansh Gupta (M131-19)
Atal Kishore Sharma (M141-19)
Abhilash Das (M145-19)
Aniket Kumar (M146-19)
Vivek Singh (M163-19)
Introduction to Micro- lending (Fintech)
“The concept of fintech is very exciting, particularly in respect to
credit scoring and figuring out what products are needed by
different people.”
Source: Knowledge@Wharton, University of Pennsylvania

Fintech credit tends to emerge where

traditional services are limited i.e., where
bank branches are few, and financial depth
is lower (like India)

Introduction Sources of Data Key Players Market Product Business Model Compliances
Why Micro- lending (Fintech) for India is apt?
Insight: The micro- lending (Fintech) sector focusses on Personal Unsecured Loan (more on this in the
Product section of the analysis) There is an exponential growth in this as shown above (This is
consistent with the growth captured by the companies studied)
Insight: As per the CEO of BadaBro (and the
factual estimates presented in the clippings),
after the NPA crises in India, the Banks are
getting reluctant to issue big ticket loans.
There are a lot compliances and checks that
are mandated by RBI. Although there has
been restructuring of loans, post COVID-19,
there still a tendency to issue more number of
small ticket loans rather than big ticket loans.
Thus, we are seeing more personal loans
offered. Also, after the pandemic, people
require personal finances, rather than a car or
a home.
Introduction Sources of Data Key Players Market
Six Big Shifts in India’s Credit Landscape
Unbanked in the fold: India’s vast informal sector borrowers,
who had poor access to unsecured loans, are now getting
access to consumer loans
Digital Footprint: There is a sharp jump in new-to- credit
customers, like millennials, as lenders use a range of digital
transaction data to vet their credit worthiness
Insta loans: Algorithms and low computational costs are
enabling the new age lenders to process credit applications
within minutes
Aggressive Lenders: A wave of growth hungry, fintech lending
start-ups are simulating retail credit growth. They have their
proprietary algorithms to vet credit worthiness of their users
using the data in their users’ mobiles
Managing NPAs: Access to customer credit scores has helped
control retail credit NPAs, despite a surge in the number of
borrowers
New Credit World: Big shifts are afoot – from offline to
online, secured to unsecured, metros to rural and
discretionary to smaller regular spends
Product Business Model Compliances
Ecosystem of Micro - lending (Fintech)
Micro lending (Fintech) involves an unsecured loan of a very small amount given to the people who don’t have a proper source of income like college going
students, unemployed people, housewife's, etc. These people don’t usually have credible credit history (absence of CIBIL score). The underwriting of these
loans are usually done on the basis of the digital footprint and the data stored in the mobile phone device of the user (more on this in the subsequent
sections). This industry has evolved over the last two decades and reached over 25% penetration level in the total addressable market in 2019.

Investors and Incubators

Government and Regulators
The government and regulators in India are
promoting this sector heavily. Start-up
initiative, financial inclusion, infrastructure
support (digital cities), IP (for credit scoring
models)
Universities and Research
While some Indian academia and
research institutions are setting up
funds and incubators, matching the
scale of their global counterparts will
require more, and perhaps external
resources, given India’s subsidized
higher educational model. They need
to instil knowledge of coding (NEP),
especially for this sector to flourish
Users
Indian customers are rapidly accepting
micro lending (fintech) platforms. There
is a significant growth in internet usage
and digital footprint (the credit scoring
methodologies of these start-ups heavily
depend on the digital foot print of the
user of these services,
Although, PEVC firms have been early stage
investors, there is a trend of banks and other
financial institutions acquiring or investing start-
ups in this domain (ex: YES FINTECH). In lieu of
the accelerators, NASSCOM 10,000 Start ups is a
programme partner for Axis Bank’s soon-to-be-
launched fintech accelerator programme.
Technology Vendors
Support from the technology
ecosystem is required because of
the complex technologies used in
this sector. Cognizant India has
launched a fintech engagement (and
support) program. TCS collaborated
with Pitchdays to penetrate in
fintech accelerators
Financial Institutions
It is the banks and NBFCs who provide credit.
The start-ups in this sector just underwrite loans.
The FIs provide the requisite funds, on the
guarantee of these companies. DMI Finance
(NBFC) provides RedCarpet the funds required to
disburse loans

Introduction Sources of Data Key Players Market Product Business Model Compliances
 Porter’s 5 forces Analysis
Buyer Power
The buyer power in this sector is high. The buyers
are the users of the services of these start ups (who
avail credit). It is because there are many players in
this industry (mentioned in the subsequent sections).
Also, there is presence of many substitutes of this
sector. The cost of substitution is low (no initial or
foreclosure fees) which further increases the buyer
power
Threat of New Entry
Threat of new entrants is medium. The
algorithms (of credit underwriting and scoring)
are proprietary to these start ups. Also, it is
difficult to get suppliers of credit. There is also
a requirement of huge funds. Initially, these
micro-lending companies are expected to
fund loans on their own expense, in order to
test their delinquency rate and the accuracy
of their algorithms. Also, the cost of user
acquisition (per user) is roughly Rs. 4000 for
RedCarpet and Rs. 3000 for BadaBro. It is
bound to reduce in the future though.
Source: Interviews of CEOs of RedCarpet and BadaBro
Introduction Sources of Data Key Players
Threat of Substitution
The threat of substitution is medium or low. There
are some substitutes present like some NBFCs have
started underwriting micro-lending loans too.
However, for a very niche set of consumers like
students, housewives, temporarily unemployed,
there are little providers of credit present. Thus,
there are not many substitutes present for these set
of users
Supplier Power
The supplier power is also high. The
Competitive
Rivalry- suppliers in this sector are the providers
medium of credit. The players in this sector do not
(presence of disburse loans (usually). They can not
players) have loans as assets on their balance
sheet because they are not NBFCs
(regulated by RBI). They merely
underwrite (and then guarantee) credit.
The credit is disbursed by the NBFCs or
FIs (tied up). Thus, these suppliers have
high bargaining power because they are
limited in number and they have to follow
many regulations of RBI
Market Product Business Model Compliances
Primary Sources of Data (BadaBro)
Personal Line of Credit for Students
Badabro Giga Venture Private Limited has partnered with Royal Securities Limited (the
‘Company’), which is a Non-Banking Finance Company (NBFC) duly registered with Reserve Bank
of India (RBI), engaged in the business of providing loans. Their services are aimed towards
fulfilling the aspiration and dreams of our customers.

Anupam Ghosh
CEO & Founder at Badabro
A professional with 15+ years of experience in business
development, acquisition, in Corporate and Retail banking,
Finance, Insurance and Auto industries. His experiences include
marketing of luxury goods (jewellery), financial services, consulting,
working capital management, people management. Working across
different parts of India has given him a multi-disciplinary and
multicultural platform.
Introduction Sources of Data Key Players Market Product Business Model Compliances
Primary Sources of Data (RedCarpet)
Quick & Easy Credit+Card
The start up was incubated by YCombinator and Google Accelerators. It is funded to the tune of
USD 5 mn by Lightspeed Ventures. Get loans and credit on Platinum Mastercard for anything you
want. They also provide quick and easy loans (started with students as their primary customers) to
those people, who don't have a credit history or a steady source of income, with a ticket size of up
to 60,000/-

Kartik Venkataraman
Founder & CEO at RedCarpetUp.com
“Building Credit Cards for India. We target new to credit
customers - the 90% of Indians with no credit bureau/CIBIL
scores. With only 40M credit cards in a country with a
BILLION people, we are opening a massive untapped
opportunity in the world's fastest growing economy”

Introduction Sources of Data Key Players Market Product Business Model Compliances
Primary Sources of Data (Aurigin)
Investment Banking Platform
Aurigin is the world’s first deal origination platform to use a complex algorithmic approach to match middle-
market corporates seeking capital with the most relevant providers of capital anywhere in the world. Private
equity funds and investment banks looking to invest in or lend to companies can access qualified deals from
firms looking to raise capital or seeking investors in their business.

Rashika Saini
M&A Engagements – Buy Side
Currently handling buy side engagements at the biggest
Investment banking platform in the world. Helping PE
funds and strategic investors profile the right acquisition
target and connecting investors with capital seekers, M&A
sellers etc. 

Introduction Sources of Data Key Players Market Product Business Model Compliances
Primary Source of Data (Lightspeed Venture)
Venture Capitalist
Lightspeed Venture Partners is an American venture capital firm focusing on early-stage
investments in the enterprise technology and consumer space. To date, the firm has backed more
than 300 companies, including Snapchat, DoubleClick and AppDynamics.

AKSHAY BHUSHAN
Partner
He keeps his eye on consumer research to stay ahead of
the trends. He looks for founders who will seize
opportunities, and markets, with passion. He was a
founding team member of the Atlanta Private Equity
Practice. He also spent time with the early-stage
investment team at Accel Partners India.
Introduction Sources of Data Key Players Market Product Business Model Compliances
Key Players (Slice Pay and KrazyBee)

• Slice Pay has tied up with DMI Finance Private Limited, • KreditBee has tied up with KrazyBee Services Private
Fair assets Technologies India Private Limited,Aphelion Limited which is a certified NBFC and other NBFC partners
Finance Private Limited for lending purpose. for lending.
• Recently raised, Rs 46 crore in a Pre-Series B round led by • So far, KrazyBee has raised about $13 million in risk capital
Japan-based investor Gunosy.  from the likes of Xiaomi and Shunwei Capital, Essel Group’s
• Backed by investors like Finup, Blume ventures, Das E-City Ventures and RK Group.
capital, and Simile ventures. • KrazyBee has provided credit to more than 2.2 million
• Today, there are more than 150,000 individuals who use satisfied borrowers with the disbursement of more than
slice for their daily transactions. INR 43 billion

Introduction Sources of Data Key Players Market Product Business Model Compliances
Key Players (ZestMoney and Quiklo)
• Founded in 2015 by digital finance & technology
professionals, Priya Sharma, Lizzie Chapman and
Ashish Anantharaman, the company is backed by
leading global digital financial services investors like
PayU, Ribbit Capital, Omidyar Network among other.
• ZestMoney strongly believes that being able to pay in
EMI should be available to everyone and not only those
who hold a credit card or have a credit score.
• ZestMoney has augmented the best of mobile tech,
digital banking and AI.
Introduction Sources of Data Key Players Market
• Quiklo is started by a bunch of IIT Delhi grads,
funded by Accel Partners and has been
operating for more than a year now.
• It is India’s first technology led alternative
lending platform exclusively for students, be it
education or Electronics.
• They are building a proprietary Next Generation
Credit Risk Engine, which uses 1,000+ data
points, including derived data, to build a robust
underwriting and management strategy.
Product Business Model Compliances
Key Players (LazyPay and 360Finance)
• LazyPay is India's new age digital credit
provider with presence in 250+ leading apps
in India including the likes of Swiggy,
Zomato, Book My Show, Make My Trip,
Vodafone, TataSky and many more
• LazyPay is owned by PayU Finance India
Private Limited - a Naspers/Prosus Group
Company
• LazyPay also allows for flexible repayments
including, 15 day interest free credit,
revolving balances and low cost EMI
schemes.
Introduction Sources of Data Key Players
• A spin-off from Qihoo, is one of the largest
FinTech companies in China
• It serves millions of consumers with various
types of saving products and loan services
• By leveraging Qihoo’s massive 800 million
user base, 360 Finance is able to quickly and
exponentially grow its user base, while
building a comprehensive risk management
platform.
Market Product Business Model Compliances
Key Players (Other players in this space)

Introduction Sources of Data Key Players Market Product Business Model Compliances
Market Statistics
•According to the Reserve Bank of India (RBI), personal loans today account for 28% of total bank credit

•The year 2019 showed growth in unsecured lending, which includes consumer durable loans and personal loans. This particular segment grew by
over 100% in 2019 over 2018, with fintech lenders offering loans either through partnerships with existing NBFCs or banks or by acquiring an
NBFC license

•A report said that volumes of new personal loan accounts recorded a dramatic growth of 133.9% in Q3 2019 as consumer demand for the credit
product continued to increase

•Personal loans grew at 28% compared with 33.5% in the same period last year. The volume of origination in the personal loan category soared
134% YoY

•There is a drop in average ticket sizes for personal loans offered by NBFCs. Last year, the average ticket size was about ₹95,000. This year it has
gone down to about ₹35,000

•According to the report published by an Indian digital company, 37% of millennial customers resorted to borrowing for emergencies like medical
emergencies – a sharp increase from 31% last year

•Personal loan balances grew 35.0% YoY in Q2 2019. Personal loan balances of NBFCs, PSU, and PVT increased by 51.4%, 31.5%, and 35.1% YoY in
Q2 2019, respectively

Introduction Sources of Data Key Players Market Product Business Model Compliances
Market Statistics

•Personal loan origination balances increased by 30.8% YoY in Q2 2019. This growth is seen across lender types with PSU, PVT and

NBFC origination balances increasing YoY in Q2 2019 by 28.7%, 33.1%, and 33.7%, respectively

•An increase in delinquency was seen for NBFC loans smaller than ₹ 50,000, which constitute almost 80% of NBFC personal loan

originations

•According to Transunion CIBIL, despite the demand for personal loans and credit cards, the lenders prefer to stay away from these

segments due to asset quality concerns

•A study indicated that the inability of some consumers to repay their after the end of their moratorium period is likely to increase the

probability of default and negatively impact their credit scores

Introduction Sources of Data Key Players Market Product Business Model Compliances
Market Growth

Bejul Somaia, Investor in RedCarpet, believes that credit growth is not a bubble (yet)
because of rising demographic dividend. Also, formal (semi) lines of credit (like micro-
lending (fintech) start-ups, Banks, NBFCs, FIs, SHGs) have only tapped around 8-10% of the
actual credit requirement of India. The growth of these start-ups is sustainable, until banks
(and other big players) enter this industry, which is also a possibility and a challenge.

The share of small-ticket loans in personal loans disbursed during the last two years has
jumped almost five times. During 2017-18, these loans were only 12.9% of the personal
loan disbursed, which shot up close to 60% by March 2020. Although there has been some
moderation since then, with other personal loans growing faster, small-ticket loans still
account for half of the fresh disbursements.

‘Retail loans not a problem yet’ Within the personal loan segment, credit of below Rs
50,000 is considered a small-ticket personal loan (STPL) and it is this segment that has been
driving volumes with growth as high as 162% during 2019-20 in terms of the number of
loans disbursed.

The overall size of the STPL loan business is estimated at around Rs 12,000 crore, after
clocking a 77% rise in value terms during the last financial year as several app-based lenders
entered the market. Incidentally, small-ticket loans have seen the maximum stress among
borrowers, with 9.4% of the loans by value coming under stress.

Introduction Sources of Data Key Players Market Product Business Model Compliances
Growth Potential
Credit penetration: Funding received by alternative lending FinTechs across years (in US$ million):

⮚ India ranks significantly lower than other economies in terms of credit penetration.
⮚ This is because traditionally Indian banks’ underwriting processes required rigorous
documentation, such as income proof and credit bureau records, from potential
borrowers.
⮚ This meant that non-salaried individuals, such as small business owners and self-
employed persons often found it difficult to get access to formal credit.
⮚ However, with increasing internet penetration and credit bureau coverage, financial
institutions (FIs) and FinTechs find it easier to appraise customers digitally before giving
credit.

Advantage over Traditional Models: Internet Users in India (Mn)

1200
974.9
1000 927.4
876.3
⮚ No Physical Documentation Required 761.3
821.0
800 696.8
636.7
⮚ Quick Disbursal 600 493.4
422.2
⮚ Ideal Option in Case of Emergencies 400 302.4 342.7

200

0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Introduction Sources of Data Key Players Market Product Business Model Compliances
Product (Generic)
Product
Income Generation Loan (IGL)
Mid-Term Loan (MTL)
Emergency Loan (EL)
Individual Loan (IL)
Student Loan (SL)
Purpose Terms Interest rate
Income generation, asset development 50 weeks loan paid weekly 12.5% (flat) 24% (effective)
Same as IGL, available at middle (week 25) of IGL 50 weeks loan paid weekly 12.5% (flat) 24% (effective)
All emergencies such as health, funerals, hospitalization 20 weeks loan 0% Interest free
Income generation, asset development 1-2 years loan repaid monthly 11% (flat) 23% (effective)
To meet small expenses (buy a phone, go on trips, pay semester fees,
etc.)  3-12 months usually, repaid monthly  18% (flat) 24% effective

The basic platform for the main product (i.e. the micro lending service) of the sector covered is an application, the application, when downloaded on a
mobile phone device, captures a lot of data like the following (to depict how credit scoring works):
Location: location helps the start ups to send collection agents, in case of a default to the place of origin of the loan application). It also helps them to intimate the user of the nearest KYC points
of these applications

SMS: The banking SMS’ help these start ups to capture the banking related data of the user and estimate their income/ expenses, required for the underwriting of the loans. They tend to filter
SMS from UPI, Banks, etc.

Contacts of other users: Suppose the contacts also downloaded these start ups’ application and then used their service. They tend to (using neural networks and AI) how the such people
(contacts) performed and then determine if the current user is risky or not

Contacts of parents (and family members): Most of the users are students for these start-ups. When the application is downloaded, the contact details of parents and family members is
captured, so that they can be contacted in case of a default

Referral/ Salesman Information: They tend to capture this information in order to understand if there is a presence of correlation between the sales of an individual and defaults. Also, most of
these start-ups have presence in campuses through sponsorships, campus ambassador programmes, etc.

Other Data: The other data collected include College (or Employee) ID, proof of identity (UIDAI), proof of residence, selfie of the user, digital signature. The credit scoring algorithm tends to
underwrite these users on the basis of this data. For instance, negative locations, negative colleges (if many defaults come from a particular college)

Introduction Sources of Data Key Players Market Product Business Model Compliances
Value Chain Analysis
Firm Infrastructure- Application, website, learning organization, key partners, credit scoring model, customers, campus ambassador network,
presence in campuses, recovery and collections procedures, trust of the users, etc. The most important is data, the data of the users is
leveraged for acquiring (and underwriting) other customers as well
SUPPORT ACTIVITIES

HR Management- The business requires the following type of people- App developers, credit underwriters (to build AI models), data analysts,
sales executives, campus ambassadors, reconciliation people, recovery and collection agents, operations executives, customer service
executives. Choosing a trustable talent is key to the success for this business as there is a huge potential of default (RedCarpet lost 60 lakhs)
Technology – There are primarily two areas where technology plays a significant role for a company in this sector- One, the User interface of the
application, which needs to be downloaded by the user must offer a seamless and a glitch free user experience. Two, the proprietary credit scoring
model is the core of the business. It must be able to able to differ between good and bad potential borrowers.
Procurement (Supply of credit)- The microlending (fintech) company is usually not an NBFC, because of high scrutiny by RBI. (They intend to transform
into to an NBFC, RedCarpet has incorporated Redux (an NBFC) very recently). Thus, they can’t keep assets (advances) on their balance sheet. Hence, they
require an NBFC or Bank to disburse loans. Thus, they regularly need to procure funds. But this can be avoided once they receive an NBFC license.

Operations (Credit Outbound Logistics

Inbound Logistics (Recovery and Marketing & Sales- There
Underwriting and Service- A good
(Customer Acquisition and Collections)- The default are several channels to
Disbursement)- The credit customer service is
Verification)- Customer rate in this business is high, generate sales (and
scoring model (AI, ML and essential because
acquisition is better which is the reason behind awareness of the product)
logistic regression) is of presence of
explained in marketing and charging exuberant rates including but not limited
employed to underwrite substitutes and
sales. Verification of docs ranging from 24-36% p.a. to- direct (online), campus
the credit. If the loan is competitors (The
and KYC is a key process for or even more. The recovery ambassador networks,
approved it is usually feedback of
underwriting. It is very and collection agents sponsorships, sales team,
transferred to the wallet (of customers are not
important to identify a constantly remind the etc. Customer acquisition is
the company itself) of the good for many
genuine and fraud defaulting customer to pay. one of the key costs which
respective customer for companies
customer. A lot of loans are settled the company burns cash in
online purchases/ fee studied)
which results of loss of the initial stages
payment, etc.
interest and principal
PRIMARY ACTIVITIES
Introduction Sources of Data Key Players Market Product Business Model Compliances
Product - Moats
Underwriting based on analytics: small-ticket personal loans (STPL), which were the scourge of the crisis in the same segment a
decade ago, are back. This time, they are being driven by software deployed by finance companies and fintech start-ups to approve
and disburse low-value loans based on analytics. The underwriting is done very smartly using AI, ML and neural networks based
technologies.

Huge (and growing) user base: Finance companies and neo-age lenders are increasingly targeting young, low-income, digitally savvy
customers, who have small-ticket and short-term credit needs but have either zero or limited credit history. There is a huge demand
for such loans. This has been explained in detail in the previous segment of this analysis.

Recovery practices: The start-ups usually exploit personal data, adopted by some app-based lenders. This is usually done for the
exploitative (and efficient) recovery process that they follow. For instance, when we studied the feedbacks (on Google Playstore) for
these apps we found that they tend to send SMS’ to all the contacts of a user (with photo of the user and default notices) in case of
a default. The user is usually a student and his/ her contacts include family, college professors, friends, etc.

Fintech journey built on partnership: The digitally savvy and neo-age user of this application becomes a regular user of the service
because of two reasons. One, he will not get credit from other sources (informal sources are higher than the interests offered by
these companies). Two, he becomes habitual of taking credit (even for making purchases that he/ she might not require) because of
the ease of payments offered by these companies.

Upcoming New Age NBFCs and Support from Banks and FIs: There is an increasing trend of NBFCs entering this domain. Though
they lack the technology (which is why they prefer to partner with these micro-lending (fintech) companies), but they still want to
enter this vibrant sector with huge potential for growth

Introduction Sources of Data Key Players Market Product Business Model Compliances
Product Categories
⮚ Personal Loan
A personal loan is an unsecured loan that helps you meet your current financial needs. You don’t need to pledge any security or collateral to avail a personal loan. These are offered from
1500 up to ₹ 2 Lakhs at competitive interest rates. The amount is directly transferred to a personal bank account. Interest rates are flexible, repayment tenure is allowed up to 12 months.
⮚ Salary Advance
A Salary Advance Loan is a short-term loan provided to borrowers on regular payroll to meet their immediate needs. It usually helps them take care of unforeseen expenses in case of a
shortage of money at the end of the month.
The minimum requirement is that you must be an active employee with regular/permanent status of employment with active payroll of at least three (3) months and at least ₹15,000
average salary. The Interest is almost 30% pa for these and the loan processing fee is around 6 to 6.5% of the loan amount.
⮚ Semester Loan
Semester Loans are open to all borrowers to finance their college semester needs (be it tuition fee/ study material/ certification program). Borrowers can avail loans up to ₹2 Lakhs and
the loan is directly raised as a demand draft in the name of the college, instead of being paid to the borrower. The guardian to be the co-borrower/guarantor of the loan. The interest
rates start at around 11% pa with processing fees around 0-4% of the loan amount.
⮚ Two-Wheeler Loan
Two-Wheeler Loans enable borrowers to avail loans starting from ₹35,000 up to ₹2 lakhs, where the loan is directly raised in the name of the vehicle showroom(from where it is being
purchased), instead of being paid to the borrower. Interest rates are around 23% pa, loan processing 0-4%.
⮚ Online Purchase Loan
Eligibility for an E-Commerce Loan is decided by system parameters in the lenders technology platform, which include credit score, repayment history with personal loans etc. To become
eligible for this kind of loan, one needs to avail and repay other types of loans first (mostly personal loans). The rate of interest varies between 0 and 24% pa while the loan processing
fees are 0-3% of the loan amount.

Introduction Sources of Data Key Players Market Product Business Model Compliances
Different Business Models

There are four sets of start-ups in fintech lending –

⮚ A marketplace model such as Bankbazaar that offers a range of choices to borrowers while the lending is done by

banking/NBFC partners

⮚ Players like ZestMoney that have an innovative product for an underserved segment but lending is done by

banks/NBFCs

⮚ Companies like Early Salary that are lending from own books Peer-to-peer, or P2P, lenders, who neither use own

money nor have tie-ups with banks.

⮚ P2P players such as Faircent, LenDenClub and Lendbox pool savings of high net worth individuals to lend further.

This means not all fintech players are challenging banks. Some are, in fact, working with banks/NBFCs, while others are
serving segments hitherto ignored by traditional banks and NBFCs.
Introduction Sources of Data Key Players Market Product Business Model Compliances
VRISA Analysis (Generic for the Industry)
Acronym Meaning Key Question
V Valuable Do they provide customers what they
value?
R Rareness Does only the companies in this
industry has the capability?
I Imitability Is it easy for other firms to imitate a
similar business model?
S Substitutabilit
y
Are there any other resources that
can offer the same value to
customers?
Analysis Result
Yes, the offering of the companies in this sector is
very valuable, especially to the people who don’t
have access to credit because of reasons
mentioned before
The credit scoring model is unique to this industry.
Inf act, each start-up has a different way to assess
the credit worthiness of the potential borrower
The business model can be imitated. The number of
firms in this sector have sky-rocketed in the previous
three years (Lightspeed Ventures)
It can be substituted by banks, NBFCs and other big
players. Also, the college going students (the major
customer segment) is only there for 3-4 years

A Appropriabilit Can the business make money from Although the business model involves a lot of cash
it? burn in the initial stages. The interest rate spread
y
and other revenue stream mentioned are sufficient
to cover costs

Final Result- The firms in this industry have a temporary competitive advantage

Introduction Sources of Data Key Players Market Product Business Model Compliances
Metrics (Used for NBFCs)

Portfolio to Assets: This ratio demonstrates how much has been allocated to its loan business. Low levels may indicate inefficient use of funds and too a high a level may indicate a problem in
liquidity. Other funds can also be allocated to research and development.

Cost Income Ratio: This ratio shows cost as a percentage of revenues and provides an indication of how efficient the company is. Declining trends or a rising ratio may give an indication of
declining efficiency and lower profitability.

Cost Per Active Client: This ratio expresses operating expenses as a percentage of active clients. Clear policies will be required to define an active client as clients may have multiple accounts or
services.

Borrowers per Underwriter: This measures the loan application load per underwriter. It can be used to give an indication of which underwriters/ customer service executives are serving the
most customers or to identify opportunities to spread workload more effectively across the team.

Active Clients per Staff Member: This metric demonstrates the overall productivity of each member staff who manages clients.

Client Drop Out Rate: This metric shows the percentage of clients that had no transaction activity with the application in the designated period. When broken down by member of staff, it can give
an indication of how well staff are serving clients. Alternatively, it can be broken down by type of client to identify broader patterns and customer service weaknesses.

Average Outstanding Loan Size: This measures the average outstanding loan balance per borrower, and can provide an indication of the typical outstanding financing accessed by clients.

Average Loan Disbursed: This metric shows the average value of each loan disbursed. This can be compared to the national income per capita or as a % of a number of students in an area to be
used as an outreach indicator.

These indicators are indicative and some of them are used after the company gets converted into an NBFC. However, they are
very relevant to gauge the performance of a company in this sector
Introduction Sources of Data Key Players Market Product Business Model Compliances
Metrics used to gauge performance
Portfolio Yield: This metric demonstrates the company’s ability to generate cash from interest, fees and commissions based upon the average loan book.
A declining trend in the yield might indicate a change in product mix, a change in loan pricing or an issue with increasing arrears.

Net Interest Margin: This ratio shows the net of interest income less interest expense over the average earning assets. This yield measures the margin
after paying for funds and a declining trend will mean less profit to cover operating expenses and loan losses.

Return on Average Assets: This ratio demonstrates how the company is managing its assets. A positive RoA indicates how mature the company has
become.

Return on Average Equity: This metric is a good measure of profitability and a mature company should generate positive RoE by building equity through
retained earnings.

Financial Expense Ratio: This ratio provides a measure of the financial expense incurred to fund its loan portfolio.

Impairment Expense Ratio: This ratio shows credit related losses or write-offs in the loan portfolio. Delinquency and provision policies can affect this
ratio. This is the most important ratio to measure the performance. Number of defaults as a percentage of total user base is also used

Operating Expense Ratio: This measure shows the cost of delivering loans to the average loan portfolio. A declining trend may indicate a more efficient
organisation or an increasing average loan size.

These indicators are indicative and some of them are used after the company gets converted into an NBFC. However, they are
very relevant to gauge the performance of a company in this sector
Introduction Sources of Data Key Players Market Product Business Model Compliances
Business Model Canvas
Key Partners
- Suppliers of Credit- The
NBFC/ FIs that provide
the, funds to disburse the
loan amount
- Third Party Verification-
They hire third part
vendors for verification of
docs
- Payment gateway
- Channels to generate
revenue stream
- Authorizing Bank- They
require a bank (who have
connect with RuPay/
Mastercard/ VISA/ etc., to
authorize their credit card
Customer Segments
- College going students-
above 18 years of age
- Housewives
- Currently unemployed
people who are in job
transitions
- must have a smart phone
Key Resources
- Entrepreneur
- Employees
- Key Partners
- Funds to disburse and
operate
- Trust of the users
Channels
- Campus Ambassador
Network in colleges (who
make sales and collect KYC
docs)
- Sales team- CAN reports to
them and they also make
sales in campuses
- Sponsorships- They also
sponsor events in colleges to
build connect with student
community
- Direct Sales- Leads
generated through company
website and direct calls
- Social Media Marketing and
Digital Marketing
Customer Relationships
Most of these micro lending
fintech start-ups try to maintain
cordial and good customer
relationships (through in-house
customer service teams). Some
of their reviews on google play
store depict another story
Value Proposition
Providing low ticket unsecured
loans to people who don’t have
credit history or collateral or
source of income. Thus, banks
or NBFCs don’t provide them
loans
Key Activities
- Lead generation for the sales
- Customer Acquisition and
making sure downloads of app
- KYC and Verification
- Underwriting
- Disbursement of the approved
amount
- Application updating and
development
- Updating the scoring module
Solving customer query (a
major part of operation)
- Recovery and collections
(recovery is of good accounts
and collections is involved for
bad accounts)

Cost Structure Revenue Streams

- The major costs expended are in customer acquisition. Sponsorships, campus
ambassador networks, sales teams cost a lot to these start-ups
- The other major cost is the interest paid to the supplier of credit (this is
recovered from the user at a spread)
- The costs expended in application development and updating it are significant as
well. The technical team costs a lot
- The unrecovered loans are also a cost for this business as they are guarantors
- Other costs include normal business operation costs
- The major source of revenue is the interest rate spread earned
- Cash collection fee, late fee, penal interest charges
- Fee collected for delivering the credit card
- Fee is also collected from the campus ambassadors to deliver them their
respective campus ambassador kits (some part of it includes security)
- Loan processing fee (this is minimal and only some start-ups charge this)
- The cost is also incurred to use the payment gateway (service charge). This is
also recovered from the customer at a little higher price

Introduction Sources of Data Key Players Market Product Business Model Compliances
Compliance & Risks
⮚ The RBI says that banks, finance companies and entities regulated by state
governments are allowed to lend and the general public should not share KYC
documents with any other lender. Its directive requires digital platforms to
disclose the names of the banks or finance companies on behalf of which
they operate.
⮚ “The RBI has norms for data privacy, data localization and recovery of bad
loans. Apps that are registered as NBFCs come under these guidelines.
Currently, fintechs that partner with banks and finance companies for lending
are regulated only from the point that they plug into the lender’s network and
those who are not registered and do not partner lenders are not regulated at
all,” said Sandeep Srinivasa, founder of micro-lending startup RedCarpet.
⮚ Meanwhile, the Digital Lenders Association of India, or DLAI — with members
like Capital Float, IndiaLends and ZestMoney — has shared a checklist of
telltale signs that a lending app is not RBI-regulated. A key giveaway is that
the party asking for the loan agreement is not an RBI-regulated entity.
Introduction Sources of Data Key Players Market
⮚ Technology is also creating grey areas in lending. Fintechs are providing
buyers with a ‘buy-now, pay-later’ option — a feature that is halfway
between a payment facility and a short-term loan. The U K Sinha
committee on lending to small businesses had recommended creating a
new regulated entity — loan service provider — who would represent the
borrower and help them get loans.
⮚ According to Srinivasa, the proposal to regulate platforms as loan service
providers would have enabled the regulator to keep tabs on fintechs that
collect data to enable financing. These fintechs distribute and do
collections without reporting to the RBI or credit bureaus.
⮚ “DLAI has been working with its members and the regulatory bodies to
control practices that are illegal or in any way harmful to the customer.
However, we have noticed many such apps have found loopholes in the
systems and reach vulnerable customers, often in urgent need of money,”
said a DLAI official.
Product Business Model Compliances
Compliance & Risks

One of the major risks in microlending has been the issue of overborrowing, with
Consequently, achieving a sustainable NPA ratio has
nearly 35% of the borrowers having access to two or more lenders. With the increase in
borrowing and the advent of new-to-credit borrowers, the concern around maintaining been the top priority for regulators, the government
a stable NPA ratio is natural. and financial institutions, with various guidelines being
launched in recent years to control NPA-related issues
like overborrowing and aggressive lending.
An RBI notification published in Feb 2018 played an
important role in stabilizing the NPA ratio for individual
microcredit borrowers at around 2–2.3% compared to
8–14% for loans to commercial entities in Sep 2018.
As per the notification, MSME entities were to be
tagged as NPAs 180 days from the date of the first
default, instead of 90+ days.

In order to address the need of a stronger regulatory framework, the RBI has also formulated regulations for priority sector lending to boost microcredit access to
sectors like agriculture and MSMEs. The impetus provided by the regulation has resulted in financial institutions lending beyond the prescribed limit of 40% of the
adjusted net bank credit in the priority sectors.

Introduction Sources of Data Key Players Market Product Business Model Compliances
Risks
All Risks associated with microlending:

Introduction Sources of Data Key Players Market Product Business Model Compliances
COVID-19 Fuelled Growth for this Sector
While it was hoped in many quarters that the Covid-19
pandemic was a short-term problem that would get managed
well and blow over quickly, sadly that’s not the case.  been seen as the mainstream will continue.
FinTech Sees Higher Usage:
• Many FinTech apps have seen increased usage across the
board. For instance, FinTech apps that cover the pan-
European market experienced a 70+ percent jump in activity
on their platforms in March alone.
• The brain trust behind many FinTech companies is advanced,
youthful, and highly adaptable to change – far less so
compared to stodgy banks, which are often the slowest to
adapt to changing consumer lending demands.
• It is likely that uptake in using alternative sources to get
personal loans approved outside of what’s traditionally
• Frankly, with a more cooperative lending programs and
faster approval/denial responses, consumers will
remember a positive experience and when they need a
loan, or a friend does, they’ll steer in a new direction.
• In an age when convenience, speed, and customization are
seen as important to people, hitting a brick wall or an
inflexible one, isn’t a pleasing outcome.
• While some banks will offer payment holidays to people
who have suddenly become unemployed, their
benevolence will not last.
• Anyone who has tried to get a personal loan recently and
found that they got turned down (along with other people
they know), knows it leaves a sour taste in the mouth.
Conclusion
Lessons For Traditional Players: Lessons For New Players:

⮚ There are clear signs that consumers are willing to sidestep the banks is in pursuit
of a new personal loan. ⮚ Low credit penetration among both households and MSMEs indicates high

⮚ Companies are perfectly positioned to offer short-term loans to consumers who

find a need for one and are struggling to locate or pass approval through their growth potential.

consumer bank.

⮚ Many financial organizations have the lending capacity to satisfy the personal
⮚ Easy availability of alternate data for credit assessment, but there is a high

finance market. While this fact may have alluded consumers before, one potential
upside to the suffering this year is that people are more aware of their personal need to validate the use and effectiveness of such models.

financing options than ever before. Once this knowledge is embedded, it’s not
easily forgotten. And nor is when alternative lenders were willing to still lend while ⮚ However, the risk of rising NPAs and 1 borrower borrowing from multiple
the traditional market closed down.

⮚ The lessons for the personal loan market are that if you fail to innovate and adjust lenders requires a continued focus on robust credit risk.

to sharply modified risk profiles for the issuance of new loans, consumers will go
elsewhere. While people used to have few choices like talking to their local bank ⮚ FinTechs will have to take note of data privacy laws and related customer
manager to apply for a loan in person, those restrictive days are long gone.
Personal lenders need to accept the new reality, or they may find their core concerns.
customers going elsewhere in the future.
THANK YOU!