Startups now operate pocket money loans of up to Rs 30,000 for students

Over the past 3-4 years, several start-ups have started offering instant micro-loans to buy airline tickets and food online in a segment largely untouched by the formal banking and shadow banking sectors.

slicepay | Indian Institute of Technology | bajaj

The start-ups are appealing to some of the country’s youngest loan seekers, students and recent graduates looking for pocket money. The segment remained largely outside the purview of formal banking and shadow banking.

Over the past three to four years, several start-ups have started offering instant micro-loans ranging from Rs 200 to Rs 10,000, and sometimes even more, to students and young graduates, who have no cash flow. stable income.

By using technology and analyzing spending patterns and demographics, these new era financial companies are able to make the business model viable, keeping defaults low and margins stable.

Some of the few instant loan companies that have sprung up in the last 3-4 years include mPokket, KrazyBee, SlicePay, and Udhaar, to name a few. The loan is made via an application, linked to a credit card.

SlicePay, a Bengaluru-based start-up that focuses on micro-loans to students through its credit card, offers young people loans for purposes such as ordering food online, booking flight tickets and buying clothes.

Ticket sizes range from Rs 200 to Rs 30,000, says Rajan Bajaj, founder of the company. He had started the company three years ago shortly after graduating from the Indian Institute of Technology Kharagpur.

The company has already acquired the status of a non-banking financial company, is present in about seven cities and has about 180,000 customers.

mPokket, a Kolkata-based start-up, started operations in December 2016, and in less than three years, its annual loans are around Rs 500 crore, which is similar to a mid-sized microfinance company.

According to Gaurav Jalan, founder and CEO of the company, one can take a loan ranging from Rs 500 to Rs 10,000, but the average note size is around Rs 1,100-1,200.

Much of the success of these companies can be attributed to technological innovations and the use of smart phones, which have removed several layers of manual verification, while keeping an eye on customer consumption habits.

“Banks and other financial institutions have never invested in technology. For example, automation helps with risk assessment and bypasses the costs associated with physical verification. The space is big and there is not enough competition,” says Bajaj.

Notably, most customers of these platforms have no credit history, as they are often first-time borrowers from an institution. Therefore, some of the matrices that these companies take into account when granting loans are consumption habits, educational background, demographic profile and social network group, to name a few.

Additionally, to bypass physical verification, customers are required to take selfies or make a short video of themselves to complete the in-app registration process.

“We use various automated risk assessment techniques. For example, if we see a lot of loan applications from a particular locality, a red flag is immediately raised,” explains Bajaj.

Additionally, to incentivize students, many companies offer cash back on referrals and also offer an interest-free period. The average annual interest rate charged by companies ranges from zero to 30%, and most lenders have ties to NBFCs for financing.

After exploiting Tier I cities, most of these companies are now moving to Tier II and III cities.

“The market for this segment is close to a billion dollars. We are no longer just operating in Tier I cities, but are actively looking to expand into Tier II and III cities,” says Abhay Tamaria, Founder of RedCarpet. The company’s average loan per month is now close to Rs 20 crore.

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First published: Monday, May 20, 2019. 1:37 PM IST

James V. Hayes