Yesteryear director Bimal Roy’s masterpiece ‘Do Bigha Zamin’ highlighted the pain and struggle of Shambhu to seek loans from traditional lenders that too without collateral, after Harnam Singh deceitfully mounts a large pile of debt on him. If Shambhu fails to pay off the debt, his land will be seized which seems to be his sole livelihood and asset.
The film has aged 68, but what Shambhu faced is yet unsolved over the years i.e. lack of access to formal credit for lower-income groups. There are approximately 550 million Indians that are underserved with access to formal sources of credit.
There are three challenges faced by the residents of tier-II and tier-III while seeking loans from formal sources :
Lack of prime credit score.
Credit is available at the point of sale via credit card but penetration and usage are low.
High costs are charged by the traditional banks for processes such as onboarding, management, and recovery.
But, Aditya Damani, exactly knew what was lacking in the lending space to help the underserved Indians get loans through formal sources of credit by offering 0% or low cost, short term, unsecured installment loans at the point of sale.
Credit Fair-The inception
Founded in 2018, CreditFair is the brainchild of Aditya Damani whose previous experience of mobile, B2B sales, and Institutional-lending experience has helped him run and grow this venture successfully.
His prior work experience of working with Oakam – a digital micro-lending company based out of London that provides long-term solutions to people who are excluded from the mainstream financial life in London, motivated him to think if the same can be emulated in India. Aditya witnessed the transition of India’s fintech ecosystem from informal to formal and wanted to financially include the ones that are underserved mainly from the tier-II and tier-III cities.
There are approximately 550 million Indians that are underserved with access to formal sources of credit.
Lending loans digitally to the ‘Bharat’
What makes Credit Fair differ from other digital lending platforms is its partnering with specific merchants and dealers to offer 0% EMI and subsidising the interest cost.
Earlier merchant partners grappled to provide point of sale financing options to their customers due to the inability to pay their high subvention rates, lower approval rates, and the time to loan disbursal can be as long as five days, which resulted in the low number of customers.
Digital lending platform Credit Fair acts as a bridge between the customer seeking loans and the merchant companies willing to give loans.
With the merchant companies it forms a symbiotic relationship giving the below advantages:
Offering no-cost EMIs and growing revenues upto 45 percent.
Get quick notifications using Credit Fair’s app.
Get a higher approval rate with a CIBIL score as low as 600
Faster loan disbursements
To name a few Careerpoint Kota, Indira IVF, Miles Education, Saviesa , Sleek Kitchen from Asian Paints are some of the merchant companies that lend loans through Credit Fair.
Credit Fair is a microlending fintech platform that lends loans at low cost or 0% EMI to the Indians from small towns and cities.
Sectors in which loans are offered
Credit Fair offers loans to their customer seeking loans in health, education, home decor, and electric vehicles. The need for loans in these sectors has emerged in the pandemic due to online education paving the purchase of laptops and tablets, medical emergencies due to Covid-19, home renovation, and electric vehicles which is to be the government’s focus for reducing pollution. These are high growth sectors and people consuming these consists of the target segment. Moreover, the combined annual spend on these sectors amounts to $20 billion and it gets the first-mover advantage since few lenders offer loans specifically in these sectors expanding the ambit of financial inclusion. The loan amount ranges from USD150-25,000 and tenure from 3 months to 3 years.
Is the borrower genuine?
Since, the loans offered to the borrowers are unsecured, monitoring the end-use of funds lent and giving money for specific use cases, and knowing where the money is going is crucial for Credit Fair’s business model. To minimise the risk of defaults, it has built a machine learning model to estimate the credit limit of borrowers.
In addition to this, it has stringent processes to assess both financial and behavioural parameters to develop a credit profile of a borrower. Among, financial parameters, it analyses an applicant’s banks statement and credit history to understand the capability for repayment of the loan. In behavioural parameters, it leverages the apps used, transactional SMS, and scans the social media behaviour to understand a borrower’s willingness to pay. Identity and fraud checks are also conducted at various points to establish the authenticity of the candidate.
Gamification for collection of loan repayment
Credit Fair has an in-house digital collection facility that realises loan repayments through e-mandates. Currently, 60-70 percent of its customer base uses e-mandates for loan repayment. And 8-10 percent would miss on repayments. Credit Fair uses gamification to induce the right behaviour among their borrowers to ensure and make them understand their consisting defaults will impact the credit score that might prevent them from seeking bigger and better loans in the future. For intentional loan defaulters, Credit Fair engages with its customers to restructure the loan payment period.
It uses an auto-decisioning rule engine to improve the efficiency of operations and reduce turnaround time.
Credit Fair’s Money matters
Recently in November 2021, Credit Fair has raised undisclosed funds from Northern Arc to build its capabilities to expand its ambit of financial inclusion to the underserved Indians belonging to remote towns and villages. With the fresh injection of funds, they want to expand their credit products via their mobile app to offer digital financial services to small businesses and middle and lower-income groups. Besides, the fundraise Credit Fair will benefit from Northern Arc by leveraging its expertise of advising hundreds of leading companies in financial services to optimise their debt-raising strategy in expanding products and services across all market categories and become the market leader. Till date, more than $7 million loans have been disbursed, and more than 30,000 customers have availed of their digitalised and automated service.
In the future, it plans to raise $5 million to reach a $15 million monthly disbursement rate and $75 million assets under management in 2 years.
The road ahead for lending loans
By 2025, Credit Fair aspires to witness atleast 1 million Indians having access to the right amount of credit at the right cost and time. They want to penetrate deeper into the masses to offer no-cost EMIs and offer better loan terms and personal loans than what banks and large NBFCs offer. Moreover, they want to foray offering loans to sectors that cater to the individuals of the age bracket of 25-40 years. They want to build a credit ladder for those individuals with no credit history.
It wants to build a P2P lending platform to lower the cost of funding and keep the cost minimum for customers.