Faircent.com Releases Social Impact Report

Outlines How P2P Lending is Extending Credit Access to Indian MSMEs

Key Highlights: 

·  Extending credit access to boost the economy especially for Tier 2/3 Cities: How soon to be RBI-regulated P2P lending platform is creating a tangible social impact in India

·  Significant difference in lending approach in the comparison of loan disbursals by Faircent.com and other financial institutions

·  P2P Lending enabling female borrowers with greater access to credit 

Focussing on the economic resurgence by online P2P lending,  Faircent.com has released Social Impact Report.  The report highlights, how its tech-driven approach has been empowering Indian businesses and consumers, and how improving the liquid capital available in the market is stimulating greater economic activity on a pan-India level. Having recently been brought under the regulatory ambit by the RBI, India’s nascent online P2P lending sector has already made a significant contribution towards furthering the cause of financial inclusion. With more individuals lending to one another, interest rates for borrowers are going down, even as the increased availability of affordable credit stimulates greater financial activity and drives business growth. 

As a result, consumer segments such as MSMEs – until now either completely unserved or significantly underserved by the traditional banking and financial services segment – now have unparalleled access to finance and credit. This economic resurgence by online P2P lending is what this report is focussing on.

A key point from the Social Impact report highlighted the fundamental difference between the credit assessment approach adopted by Faircent and other financial institutions offering unsecured loans. Most financial institutions in India at present rely on a lot of ‘hard policy rules’ for making credit decisions. This ends up excluding a lot of potential borrowers such as self-employed borrowers, young salaried borrowers with no bureau history, or those without tangible assets from the ambit of institutional credit. Many businesses within the MSME industry – which contributes nearly 45% to the country’s overall GDP – are therefore not able to get the credit they need to scale their businesses.

Faircent.com addresses this challenge by analysing a multitude of data points, such as social, financial, personal data, under its credit assessment algorithm. Moreover, since it is not bound by a narrow interest rate band like most financial institutions, Faircent.com can price the loan requirements across multiple interest rates, enabling it to accommodate a substantially higher proportion of borrowers. 

Its completely online and paperless approach also allows borrowers across geographies, consumer demographics, and socioeconomic brackets to apply for unsecured loans without having to visit a physical branch to submit copies of their documents. Borrowers new to credit or with poor credit history, who face much difficulty in getting their loan requirements fulfilled by traditional avenues, are also able to avail hassle-free loans through the Faircent.com platform.

The difference of this approach reflects in the comparison of loan disbursals for Faircent.com and other financial institutions. Borrowers from tier-2 and tier-3 cities comprised 20% and 17% of the total number of loans disbursed through Faircent.com. New-to-credit borrowers comprised 35% of fulfilled borrowers on the Faircent.com platform, while those with poor credit ratings accounted for 10% of the overall number.

Faircent borrowers from tier-3 cities included people like Rahul, a rice mill owner in Ranchi who needed funds to set up a water purification plant at his work site. Despite being in the business for 17 years and having a monthly turnover of INR 1 crore, Rahul was unable to secure a loan from traditional financial institutions, which led him to register with Faircent. Mr. Kanwal, a furniture businessman in Bhatinda who wanted funds to send his daughter to Canada for higher education as well as to expand his business, faced a similar problem because of the poor formal banking profile of his business. Both these entrepreneurs were able to meet their capital requirement through Faircent.com.

Most strikingly, an analysis of credit bureau reports revealed how only 2.5% of the borrowers from tier-3 cities who received funds from Faircent.com got any loans from other banks or financial institutions after the Faircent loan, underlining the major credit gap that the online platform is plugging within the economy.

                                                          

Explaining this difference in loan disbursal and borrower numbers, Vinay said, “The business models for most banks and financial institutions are based on the cost at which they are able to raise funds for lending, which directly correlates to the rate of interest offered to the borrowers. Most of Faircent.com’s lenders, on the other hand, are individuals who are looking to invest their surplus funds and their opportunity cost of funds decides the rate of interest at which they are willing to invest in a borrower. Hence, as a platform, we have a potential to really serve the borrower at the best rate possible.”

“Our business model is not based on the interest margin from the borrower. We are fundamentally not looking to maximise the borrower’s cost of funding. Instead, all of our efforts are oriented towards maximising the borrower’s chance of getting funded. With our tech-based approach to peer-to-peer lending, we believe that we are best placed to serve the credit needs of the underserved segments of the society,” he added.

Another point highlighted by the Social Impact report was how Faircent was enabling female borrowers with greater access to credit, including entrepreneurs such as Mamta, the owner of Blue Lotus. A creative social entrepreneur who works with NGOs, designers, and organisations working with the disabled, rural clusters, and rural crafts people, Mamta was unable to secure finance despite a thriving business because she was more than 50 years of age. Faircent evaluated her personal credit profile and the strength of her business before approving a loan application of INR 5 lakh to secure more clients for expanding her exports and renovating her office space.

                                                                     

But bolstering the economy by empowering Indian businesses and professionals is not the only aspect that Faircent is contributing towards. P2P loans enabled through the platform are also helping borrowers across the country meet their need for urgent personal expenses, like educational equipment and critical medical care, relatively underserved by traditional avenues.

Take, for example, the case of Raghvendra, a business development officer with a private firm, who needed funds for his father’s mouth cancer surgery. By putting his loan requirement on Faircent.com, Raghvendra was able to quickly raise the required capital for his father’s operation. Similarly, Ms. Jain, an assistant manager with a private company in New Delhi, was able to raise INR 2 lakh for her mother’s knee replacement surgery through the Faircent platform.

“Medical expenses are one of the most common urgent capital requirements, and yet there are very few avenues in India that enable swift and hassle-free access to credit that medical emergencies demand. Faircent.com is addressing this gap by enabling borrowers on its platform to source the required funds directly from individual lenders, ensuring that an already stressful situation does not become overly complicated and time-consuming due to needless paperwork and bureaucratic snags,” Vinay Mathews said.

Faircent has also partnered with companies who have deep tie-ins with colleges and educational institutions to provide better credit access to education-related expenditures, such as laptops and books, for bright students with decent allowances. The most prominent cases in point are that of Mariam, who was able to fund her 3^rd year tuition fee of INR 42,000, and Thomas, who raised enough money to purchase a mobile phone for keeping in touch with his family and for studies, through Faircent.com.

With India’s online P2P lending market is expected to be worth $4-5 billion by 2023, its inclusion into a larger regulatory ambit is driving massive growth and expansion for players in the domain, as well as the overall Indian economy. Leading P2P platforms such as Faircent.com are already benefitting from the unparalleled market opportunity on offer, and are actively scaling up their technological and operational capabilities to extend financial inclusion to the last Indian.

New Delhi, February 27, 2018