'Our Revenue Model Is Designed To Benefit Both Borrowers And Lenders'

IndiaLends, a credit underwriting and analytics platform for consumer lending, says that "most Indian consumers don’t know their credit scores when they apply for loans. As a result, they face high rejection rates and in some cases end up paying higher rates of interest than what their credit scores merit.” The firm which recently raised its bridge round of funding worth $1 million from existing investors DSG Consumer Partners, Siddharth Parekh, and Gautam Radhakrishnan is to expand its services for consumers to access their credit scores for borrowing decisions.

In an interview with BW|Businessworld, Gaurav Chopra, founder Indialends, speaks about how his analytical firm will help consumers to avail easy loans, common problems faced by Indian consumers when they seek loans and more.

How will IndiaLends help consumers to avail easy loans?
IndiaLends connects borrowers with financial institutional lenders such as banks and NBFCs. The platform simplifies the entire borrowing experience for the consumer right from helping out with loan applications to disbursing loans within 48 hours of applying.

The platform processes a large number of data points for each borrower to help them get the right credit product at an affordable interest rate, while also helping financial institutions improve their risk scoring capabilities.

IndiaLends, with its Credit Score and Analytics Product, is also helping consumers to become more credit aware and knowledgeable so that consumers can improve their credit health, plan for their future credit needs, and make better decisions - allowing them to get better loan deals from institutional lenders.

What is the difference between an Indian consumer and consumers in developed nations in relation to information regarding their credit reports?
The first major difference between Indian and western consumers is in terms of consumer credit awareness levels. For instance, in the US, most consumers are aware of their credit scores and how poor payment/non-payment practices affect their credit scores; as a result, they are aware of what interest rates financial institutions should ideally charge them for a particular credit product. In comparison, credit awareness is extremely low in India - most consumers are not aware of their credit scores, how it impacts their chances of getting loan/credit card, or what are the best interest rates that banks should charge based on their scores. As a result, their loan applications either end up getting rejected or they end up getting loans at higher interest rates that what their credit scores merit.

The other major difference is in terms of procurement of credit. In the US, most consumers access credit from the organised sector such as large financial institutions like banks. In India, a large percentage of the population is borrowing from the unorganised sector such as local money lenders, who not only charge exorbitant interest rates but also do not report this data back to the bureau.

Kindly share the profit model of your analytical firm. How many potential consumers you see using your service?
Since IndiaLends began operations in March 2015, we have seen an exponential growth in the demand for loans - our loan applications have increased 15 times month-on-month to over 10,000 loan applications per month. IndiaLends’ revenue model is designed to benefit both borrowers and lenders; for borrowers all our products and loan application services are free of cost including our Credit Score and Analytics Product. For the lender, we levy a nominal fee for providing them with risk, data, and credit assessment services.

What are the common problems faced by Indian consumer when they seek a loan?
The main problems faced by Indian consumers while applying for a loan are:

Access to Credit: In India, there are currently 600 million people earning livelihoods, however, only 35 million people pay taxes regularly. Since banks lend only to the tax-paying population that has borrowed in the past (or has a credit history) and therefore has a credit file at the credit bureau, borrowers who do not have a valid Credit Score or are first-time borrowers are denied credit. As a result, a large percentage of the Indian population is dependent on the unorganized lending sector constituting loan sharks and private lenders for their credit needs (who can charge interest rates as high as 6-10 per cent per month).

Procuring Affordable Credit: Only a small proportion of the consumers who have access to credit are able to get it at affordable interest rates or at interest rates that match their credit worthiness. As a result, consumers end up taking loans at much higher interest rates. The root cause behind this problem is lack of credit awareness among Indian consumers - most Indian consumers are unaware of their credit score or the benefits of checking it. For instance, while comparing interest rates on two comparative loans, consumers often ignore processing fees and transaction costs which can result in higher effective interest rates than the ones advertised by lenders.

Getting Quick Disbursals: Most banks have lengthy documentation procedures and evaluation processes before disbursing loans to consumers. On an average, a bank can take between 7-14 days to disburse loans after a series of manual underwriters and sales reps have evaluated the application. As a result, consumers have to fulfill multiple process formalities and wait endlessly to get disbursals even when their need for credit is immediate (as in the case of a medical emergency).