Offering meaningful credit assessment on SME borrowers: Namaste Credit

Lucas Bianchi, Chartered Financial Analyst (CFA), Chief Executive Officer and Co-Founder, Namaste Credit
Lucas Bianchi, Chartered Financial Analyst (CFA), Chief Executive Officer and Co-Founder, Namaste Credit

Namaste Credit offers a unique solution that no one else in the market ensures.  It is a marketplace that specifically provides multiple offers from multiple lenders and helps to fulfil the borrower’s requirement from start to finish, says Lucas Bianchi, Chartered Financial Analyst (CFA), Chief Executive Officer and Co-Founder, Namaste Credit, in conversation with Harshal Yashwant Desai of Elets News Network (ENN).

  1. How bank partnerships with marketplace Loan Platforms really work?
    There are 3 basic partnership models:
  • Marketplace takes loan disbursement decision. The user will only get one offer – from the marketplace.  From a business model perspective, the marketplace will partner with one or multiple Banks and NBFCs, who will provide 70-100 percent of the capital for the loans and the marketplace will either retain a portion of the loan on their books (5-30 percent) or give a loss guarantee to the Bank or NBFC and if the borrower stops paying back the loan the bank would take the funds from the marketplace.  These are “risk-taking” or “risk sharing” business models.  Examples of these types of marketplaces include Indifi, Cointribe, LendingKart & Capital Float
  • Marketplace provides offers from multiple lenders. The user will input basic details and rough lender matches and offers will be provided.  Generally, this basic input will result in contact details being passed to a Bank or NBFC who will then be in touch with the potential borrower via telephone.  These are “lead generation” types of business models.  Examples of these types of marketplaces include Bank Bazaar, Paisa Bazzar, Rubique, Inda Lends, & Credit Mantri
  • Marketplace helps get disbursal done from multiple lenders. Users will provide more detailed data and documents to the marketplace, which will, in turn, get true, vetted offers (sanctions) from multiple lenders and disbursal from one or multiple Banks and NBFCs depending on the borrower’s requirement. These are “fulfilment focused” business models.  Most companies in this space operate offline.  The only one to do this fully online is Namaste Credit.
  1. How do you compete against your peers in the SME lending space?

Namaste Credit provides a unique solution that no one else in the market offers.  Specifically, it is a marketplace that provides multiple offers from multiple lenders and helps to fulfil the borrower’s requirement from start to finish.  In addition, all of this is done online and in a much shorter time frame that is required when working offline.

This means that SMEs can come to us and get offers from multiple lenders on multiple types of loans with one single application.  Most of our competitors only offer either one product (unsecured loan, for example) or one offer (their own) to the potential borrower.  The other set of competitors (don’t even provide actual offers, but rather just possibilities of offers (like yellow pages).

The second major way in which Namaste Credit distinguishes itself from the competition is through its channel partnership model.  We work closely with a network of trusted financial and statutory advisors who in turn work closely with their SME customers to get a loan proposal from application through to disbursement.

  1. What are the key challenges and entry barriers in setting up an online loan marketplace for SME’s in the current environment?

Given the complexities in processing and evaluating an SME loan requirement (described above), a few key challenges to setting up a competitive platform include:

  • Need to process lots of data. For SME loans, basic contact information is not sufficient. Typically 10+ documents and 100+ pages are needed in any SME loan evaluation.  In order to facilitate these loans, a new platform would need to be able to understand and process this data in a cost-effective and timely manner.
  • Need for reading paper-based documents. Many documents required for each loan are available only in paper format.  In order to properly understand the data related to each borrower, a new platform would need the ability to gather the information from these documents – either manually or from scans provided by channel partners or borrowers.
  • Need for a network of local channel partners. Channel partners provide several valuable services in the loan process, including collecting and organizing all the relevant documents and guiding the borrower throughout the process, including helping them understand various loan options. Signing up a large number of small, local channel partners across India is a time consuming and costly process.
  • Need to constantly update lender preferences. Lenders are constantly changing their credit policies and they do this without informing anyone.  This results in a real challenge in knowing who is doing what in the market and being able to match borrowers and lenders properly.  The only way to overcome this is to do large enough volumes with each lender that the platform is constantly up-to-date.
  1. Discuss the current state of SME credit in India.

SME credit is still the least understood, most complicated and most lucrative loan markets in India.  It still represents approximately half of all lending in the country and is highly fragmented across many players.  Traditionally PSU banks had provided CC limits to many SMEs, so the financial challenges faced by these lenders have had a meaningful impact on the SME loan market for some time.  This has resulted in many SMEs engaging private banks and NBFCs initially for unsecured loans, and now increasingly for secured ones as well. This has all happened at a time when working capital requirements of many SMEs have increased substantially due to the roll-out of GST and a generally growing working capital cycle across many industries.

All being said, the SME credit market is still the most profitable segment for many lenders due to relatively higher interest rates being charged and still muted NPAs.  Lenders who are able to efficiently tap this market tend to be among the most successful lenders (including Bajaj, Capital First, Kotak Bank, etc.). SMEs tend to use credit in a productive manner to expand their business, so they are typically a bit less interest rate sensitive than salaried consumers, who tend to have fixed salaries, or than large corporates, who have access to the public credit markets as well.

  1. Can you elaborate on the AI based video capture tool that your company has recently introduced? Is it a first of its kind?

The AI Video CAM is first of its kind and there is no global and local parallel that we know of. Organizations are still solving for extracting high-quality data from static scanning while we’ve upped the game by allowing users to capture data dynamically.

AI Video CAM is a machine learning driven, easy-to-use, video capture tool which converts paper-based documents to digital data and massively improves credit assessment efficiency. The solution is highly unique, as it combines the use of Video to grab more frames (image per shot) and the use of a neural network trained algorithm, which cherry-picks the best frames and best image in order for OCR to give the best output.

  1. Tell us a bit about your credit assessment process. How is it different from those offered by other SME marketplaces?

We don’t know of any other marketplace that conducts any meaningful credit assessment on SME borrowers.  The closest that anyone else has come to doing any credit assessment is to pull the CIBIL report of SME promoters and do some basic filtration on this report.

In stark contrast, we tend to do 70-80 percent of the credit assessment that the final lenders do before they are given any information.  This involves gathering data on, reviewing, and analyzing KYC documents, Bank Statements, Financial Statements, and Tax Returns, among others.

  1. What is your revenue model? What are some of your key metrics and business goals for the next year?

Our business goals for next fiscal are aligned with our mission to change the lives of channel partners and borrowers through technology. These are helping 5000+ channel partners adopt NC portal for all their loan processing needs, thus increasing their efficiency and earning and also helping thousands of borrowers by offering the most suitable credit solutions and disbursing B2B loans worth Rs 2000 Cr.

In Addition, using AI and Machine Learning we are automating loan process for top Lenders in the country resulting in faster loan disbursements & better credit decisions. We truly believe in improving the credit loan market ecosystem and bringing all the constituents of the loan market onto a unified platform.

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