Covid pandemic set to drive digital lending in a big way

App-based consumer lending startup SmartCoin is likely to close this financial year with around Rs 200 crore of assets under management (AUM) on the back of a strong uptick in demand seen from rural India during the past two months. In an exclusive interview with Bizz Buzz, the company's co-founder & CEO Rohit Garg said that the digital lender is also seeing repayment rates coming back to pre-Covid levels

Lenders were a little risk-averse due to the uncertainties around the pandemic. However, things are slowly changing and loan tap is opening up by most institutions. I think liquidity is never an issue in the system given the RBI support. But lenders are skeptical about the repayment due to the risks involved

We have differentiated ourselves by focusing on the next half a billion users. We have always been focused on the missing middle-class of rural India. So, our targeted customers are self-employed microentrepreneurs, kirana shop owners, contractors, blue-collar workers, and people who own small businesses among others

The Covid pandemic has led to a rise in digital transactions. Will this happen in the digital lending space?

Like digital transactions, this pandemic is going to have a positive impact on the digital lending space. Of course, we were a little cautious on lending during the first few months of the pandemic. However, with the economy looking up, I am positive about the growth prospects of the digital lending industry.

How has SmartCoin faired during the pandemic as compared to the pre-Covid period?

Obviously, all players were cautious about the risk during the initial months of the pandemic. However, after the loan moratorium period has ended, we are witnessing a good pickup in loan demand. We are targeting to end this financial year at around Rs 150 crore-Rs 200 crore on assets under management (AUM) term.

The rural economy has done better than the urban economy during this pandemic period. Has this factor reflected in your lending book?

In terms of users, we have differentiated ourselves by focusing on the next half a billion users. We have always been focused on the missing middle-class of rural India. So, our targeted customers are self-employed microentrepreneurs, kirana shop owners, contractors, blue-collar workers, and people who own small businesses among others. We see huge growth potential in these customer segments. Due to this focus, we have developed our technology set up like our own underwriting model to evaluate the risk. This technology focus apart from the targeted customer base, make us confident of future growth.

Has the repayment rate been impacted during the last months? What is the delinquency ratio now?

Given the segment we are working on, people have been impacted due to Covid. But everyone has not been impacted in similar fashions. During this period, we used technology to personalise the repayment options. That helped us to collect in a better way. Less than 15-20 per cent of our book went into moratorium and we were able to collect better than the industry average. Usually, delinquency rates are in the range of 2.5-3 per cent for the industry working in this segment.

Funds from lenders to fintech players have dried up during the Covid period. Have things changed in the last two-three months?

During the initial days, lenders were a little risk-averse due to the uncertainties around the event. However, things are slowly changing and loan tap is opening up by most institutions. I think liquidity was never an issue in the system given the RBI support. But lenders are skeptical about the repayment due to the risks involved. As far as we are concerned, we are seeing pretty good acceptance from lending partners in the ecosystem due to our NBFC license. Due to this, we are expecting to end this year on a good note.

With SmartCoin having an NBFC license, will you look at selling other financial products like insurance, mutual funds among others?

We have started with credit. In the future, we want to make sure our customers' financial health is taken care up. For this, we have to facilitate other products. So, we will evaluate these options in the future. But nothing is on the radar as of now.

Do you have any fundraising plans in the near future?

We have raised more than $7 million in a Series A round from LGT LightstoneAspada and existing investors, Unicorn India Ventures and Accion Venture Lab earlier this year. After this round of funding, we are adequately capitalised and won't require funds in the near future. Our capital ratios are very comfortable.

What are your hiring plans in the coming months? Have you stalled the employee addition process during the pandemic?

Our total team size is close to 100 people now out of which 45 staffers work on the technology front. We have never stopped hiring even during the Covid period and added many senior people to our team. Going ahead, we are very positive about adding our headcount, given the positive growth outlook.

What will be the equity to debt ratio the company looks at for scaling up?

That is an evolving situation. It will be dependent on various factors. As far as this year is concerned, we will be leveraged 2-3 times. Over time, this will increase as we grow. Big NBFCs maintained 5-6 times leverage and we don't want to grow too fast (to that level yet).

Does SmartCoin work in offline mode? Do you have any other offices in India except Bengaluru?

We don't have any other offices except Bengaluru across India. So, the whole operation is digital. This has become possible as more and more people are using smartphones in rural areas. As far as sourcing of loans is concerned, we have kept it pretty organic. So, customers are coming to us through our digital app. Also, we are getting good mileage through the 'word to mouth' route as our existing borrowers are referring the platform to new clients. Through this, we cover 95 percent of districts in India with reach spreading from Jammu & Kashmir to Arunachal Pradesh and even Andaman & Nicobar islands.

Debasis Mohapatra