Analysis Featured

India’s unserved 1.1 billion potential borrowers

Financial inclusion is an extremely important eco-political topic in India. Account penetration has just inched past 53% according to news reports. A Bill and Melinda Gates foundations study threw up the following figures:

india

Many reports confirm that only 8-10% of Indians have a formal loan. With a population size of almost 1.25 Billion, the market is not serving over 1.1 billion people.

Online P2P was born in America to precisely take advantage of this gap in the market. The 2008 financial crisis had left the US banks bleeding and they were in no position to extend retail and SME credit. P2P lenders like Prosper, Lending Club, OnDeck etc filled the space with innovative online-first credit models coupled with a hassle free onboarding experience. The same P2P revolution has now hit Indian shores with over a dozen originators fighting it out in one of the world’s biggest untapped market. i2iFunding is one of the pioneers in the market and has been growing strongly in this relatively unknown industry in India.

i2iFunding

i2iFunding was launched in late 2015 and is headquartered in Noida, India. It raised $300,000 at a $4 million valuation in an angel investment round. The team plans to raise another $3-$4 million in the next round of funding so that it can comply with any minimum capital requirement regulations set by the Indian Central Bank (RBI) in the coming months. Its founders come from various educational and working backgrounds, ranging from a nautical science engineer to a chartered accountant.

Vaibhav Kumar Pandey, MBA from IIM Ahmedabad comes with 10 plus years of experience in setting up large scale operations from scratch. Raghavendra Pratap Singh is an IIM Calcutta pass out and ex-merchant marine. He has over 10 years of experience in product development, e-commerce, and operations. Neha Aggarwal has an MBA degree from XIM- Bhubaneswar and has product development experience ranging from FMCG to finance sector. Abhinav Johary is also an MBA and has over 7 years of experience in business operations and setting up new processes. Manisha Bansal is a Chartered Accountant and has over 8 years of experience working on both domestic and overseas assignments.

Friends and families

Market penetration by established financial institutions is extremely low. Most Indians have to depend on friends and relatives or private money lenders who charge a very high rate of interest. In general, loan underwriting norms in India are stringent in comparison to most countries in the world and financial institutions indirectly discriminate on the basis of geographic location, no prior credit history, self-employment etc. Banks use out of date parameters to decide whether to approve the loan or not, which takes out the majority of the population even though they are credit worthy. And lucky few, whose loan application does pass all these arbitrary levels, have to wait patiently as application and documentation process takes over a month.

After witnessing the rapid growth of P2P industry, Reserve Bank of India (RBI) recently came out with a consultation paper to regulate the sector. The Reserve Bank of India wants P2P sector to bridge the gap between population and their access to different borrowing options. In their efforts to avoid the repeat of what happened in the Chinese market, RBI wants to regulate the market when it is still in a nascent phase and the number of players is less. Unregulated sector leaves the possibility open for unhealthy practices by one or more players which can have a detrimental effect on the market on whole.

Business model

i2iFunding business model is really simple; it acts as a connecting point between the verified borrower who is looking for unsecured personal loan and investor having an annual income of more than INR 1 million(around $15,000) who is looking for a higher rate of return than the normal savings instruments. The startup goes beyond CIBIL(Indian FICO) report and has developed its own proprietary credit score model which assesses the individual’s profile on 40 plus different parameters. So only the qualified borrower goes on the portal along with recommended rate of interest and risk category. The rate of interest is directly proportional with the risk category, higher the risk category higher will be the rate of interest. This gives the investor an opportunity to earn higher “risk adjusted return” and borrowers have the chance to get the funds according to their risk profile.

Security approach

The P2P lender has added another layer of security by executing physical verification to make sure the authenticity of the application and also to facilitate legal documentation between the borrower and the investor. To make sure default rates remain as low as possible, extra precaution is taken. Along with the loan agreement signed on a stamp paper, 3 post dated cheques are collected from each borrower. Apart from the documents provided by the borrower, it collects data from other external sources and verifies it independently. If the borrower doesn’t pay the EMI then the cheque is deposited in the bank and if the cheque bounces then legal proceedings are initiated against the borrower.

i2i earns revenue by charging one-time registration fees- Borrowers – INR100 and for Investors – INR500. After the registration, an investor can invest up to INR50, 000. Depending upon the risk category- A to F, processing fees for the borrower’s ranges from 3% to 6% and 1% is charged from an investor, for managing their investment. Ever since its inception it has got an overwhelming response, in its first full year of operation, it had more than 3500 registrations. So far 150 loan deals have been closed and 500 investors with an investment commitment of over INR 50 million have joined the i2i platform. Before it got its first round of funding, it was doing INR 0.5-1 million loans/ month and it has gone up to INR 3-5 million loans/month at a healthy monthly growth rate of 20%-25%.

Indian Fintech

All the players in the Indian fintech sector are start-ups and have been in operations for not more than 2 years. Its major competitors are Faircent, Lendbox, and I-Lend. i2i believes in the long run, the credit quality of its loans is what will set it apart from rest of its competition. It is the only P2P lender that offers principal protection to its investors, which shows how confident it is in its approval process. Principal protection is a major competitive advantage which can be leveraged to draw investors who still might not be comfortable with a sector in its infancy. It offers it investors’ returns of over 20% which is a massive 12% spread over bank deposits and a 10% spread over AA rated Indian corporate bonds.

India has all the makings of becoming one of the biggest marketplace lending markets in the world. There are about 350 million people in India who use the internet and the number is expected to rise to 1 billion by 2020-23. As more and more people get connected, the role of online lending is expected to grow manifold. With the majority of the population without credit access and the investing class wanting to earn a higher return on their investments, the potential is immense for i2i to become the first p2p unicorn in India.

Authors : Heena Dhir and George Popescu

George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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