A year ago, Captain Pankaj Kumar, owner of a New Delhi-based shipping solutions company, was looking to raise Rs 20 lakh. He approached banks for a loan, but soon realised it would be anything but smooth sailing. The banks asked for collateral plus a number of documents, including data registered with the Ministry of Corporate Affairs, three years' financial statements and business projection for five years. Then, his former banker suggested that he approach CoinTribe, a Gurgaon-based online lending platform that connects creditworthy micro and small enterprises (the company helps individuals as well) with potential lenders such as banks and non-banking financial companies (NBFCs). This time, paperwork was minimal, and the entire process moved fast.
Kumar's plight is not unique. In spite of driving jobs and manufacturing growth, small businesses often have trouble getting loans from traditional lenders. There is no standard tool to assess their creditworthiness - largely due to information asymmetry - and the potential of lending remains untapped.
No one knows it better than the co-founders of CoinTribe - Amit Sachdev, Rohit Lohia and Manish Chaudhari. It took them 25 meetings with 150 people from 10 departments over a span of seven months to convince a top bank that small enterprises should get loans online and without collateral.
In the Union Budget 2017/18, Finance Minister Arun Jaitley doubled the lending under the Pradhan Mantri Mudra Yojana to Rs2.44 lakh crore from Rs1.2 lakh crore in the previous year.Yet, the gap in funding for micro, small and medium enterprises (MSMEs) stood at Rs2.93 lakh crore, as per an IFC report.
Sachdev and Lohia became aware of this gap when they were working at the Boston Consulting Group (BCG). The duo decided to tap the opportunity and joined hands with Manish Chaudhari, who had experience in credit underwriting and earlier headed unsecured loans at Magma Fincorp. The aim was to develop credit scorecards through data-driven analytics to help lenders take a call on the creditworthiness of small businesses.
CoinTribe was launched in May 2015, with a seed funding of $3 million from Puneet Dalmia, promoter of the Dalmia Group. But before going live, the founders did some elaborate preparations and tested their assessment tool for three months across five cities. While their partner banks screened the test cases as per their existing systems, the start-up used its own evaluation method to analyse the same and checked if the results tallied. Interestingly, loans worth Rs77 crore were processed via the CoinTribe platform when the co-founders were running their proof of concept.
At present, the company caters to small businesses with Rs1-50 crore turnover; anything below that is treated as a micro business. The ticket size varies from Rs5-30 lakh (the company also offers unsecured loans starting from Rs20,000 to cement dealers, for shorter tenure) with interest rate pegged at 18-20 per cent. So far, it has helped disburse close to Rs170 crore loans, servicing over 500 customers and 250-odd dealers through its marketplace.
Recoding Risk Analysis
According to Neha Punater, Partner and Head of Fintech at management consultancy KPMG in India, success of businesses like CoinTribe depends on two things - how good their credit scoring model is and how thorough they are in customer profiling. Moreover, as cost of customer acquisition is high in the online lending space, these companies need to adopt a more targeted approach. Going by those standards, CoinTribe seems to have ticked all the boxes from the beginning. It creates and assesses credit profiles quickly and at a minimal cost, offering the kind of deep dive that leaves nothing to chance.
For instance, the start-up, which operates in the National Capital Region (NCR), has divided the area into 800 micro-markets and mapped the characteristics of each. It has also mapped how target customers behave in each of these markets, studied their cash and non-cash behaviour, and paired the data with respective bank statements to decide creditworthiness.
"In this exercise, we look at all bank transactions and use a system to classify each as a profit-and-loss or a balance sheet line item. We then build the cash component of the bussiness on top of it using a combination of analytics and heuristics, which needs a lot of groundwork to understand each micro market," explains Lohia.
Harnessing the power of data, CoinTribe has come up with a three-step screening process that ascertains an applicant's identity, analyses its ability to repay and gauges its intent to pay. To determine a borrower's identity, the company checks all available online data and social media footprint. To analyse any given applicant's ability to pay, it has identified 180 sub-industries and places the potential client in the right category to run it past all relevant data points. "We impute the income of every individual [business] and club that with margins in the industry to estimate the ability to repay. It is very important that you do not start lending beyond somebody's ability to repay," says Lohia. Evaluating the intent to pay requires looking at an applicant's loan history and other details.
For them, speed is of essence; so is accuracy. The moment a business applies for a loan, it asks for access to certain information, processes the application and conveys the eligibility within 24 hours.
CoinTribe claims to have found its place in the value chain and has a couple of business models to monetise its platform. "It will take us another year and a half to reach cash break-even and then become profitable," says Lohia. "We invested heavily in building our risk assessment capabilities and tested it out before starting our revenue lines. That should work."
The start-up has tied up with a few lenders, including Mahindra Finance, Axis Bank and a couple of NBFCs, either for the entire assessment process or for the screening of loan applications. In return, it gets a fee from the partner bank or claims part of the interest on loans, with or without risk participation. To increase revenue, the company is now in talks with other banks.
"We've been clocking Rs50-70 lakh/month in revenues. Over the past six months, we have grown tenfold and expect a 10x increase this fiscal," says Lohia. "Also, last August, we helped disburse loans of Rs1.40 crore, but this March we were close to Rs36 crore. We hope to reach $2 billion (Rs12,926 crore) in the fifth year."
Meanwhile, CoinTribe is looking to raise $10-15 million (up to Rs100 crore) and expand. "In the coming year, we could also be operating in Mumbai, Bengaluru and Ahmeda-bad," concludes Lohia. ~