Digital lenders use tech to improve SME loan repayments amid lockdown

These fintech firms are using past payment behaviour and current transactions to validate customers facing genuine difficulties

Given the likelihood of repayment delays by small and medium enterprises following the 21-day lockdown implemented to contain the spread of coronavirus, digital lending start-ups in the country have begun upgrading their technological capabilities to enable borrowers to service their loans on time without any physical interface. 

"Due to the disruption caused by the current lockdown, we do see some of our clients facing temporary difficulties in repaying their loans," said Alok Mittal, managing director and CEO of Indifi. The start-up may validate such cases based on data points such as past payment behaviour, current transaction trends and other information, he added.

The number of digital lenders providing working capital loans to SMEs in the country has risen in recent years. Though the total amount disbursed by such lenders is not more than Rs 10,000 crore as of now, their existence has given many small entrepreneurs access to loans that were otherwise not available to them from traditional financial institutions.

However, the 21-day lockdown announced by the government has put these small businesses in a spot, as they face severe cash-flow issues with their operations coming to a standstill. "The cash flow and businesses have literally halted," said Manish Lunia, co-founder to FlexiLoans.com. 

MSMEs, which are seen as the backbone of the Indian economy, account for 29.80 per cent of GDP, according to the latest annual report of Ministry of Micro, Small and Medium Enterprises. 

"The travel and hospitality business will go through its own stress cycle, but there is likely to be a boom in pharmaceutical and diagnostic labs," said Harshvardhan Lunia, co-founder and CEO, Lendingkart. He also said, it has been a ‘struggle’ to reach out to customers in tier-I and large towns ever since the 21-day lockdown kicked in last Tuesday.

However, these new-age lenders are ramping up their technological prowess to reach out to clients and improve the collection process. "This involves targeting relatively low-hanging fruit like using a dialer to handle the increase in expected collection volumes, to using sophisticated data analytics to determine the most appropriate day of the week to collect the loan installment," Mittal of Indifi said. Indifi has over 25,000 borrowers across the country.

FlexiLoans.com has been working on a customer communication programme that involves informing borrowers about the the options available to them, such as the three-month moratorium or other arrangements. "We are sprucing our digital collection ecosystem for smart and digital recoveries in these times," Lunia of FlexiLoans.com said. 

Lunia of Lendingkart, whose company has disbursed over Rs 5,000 crore loans till date, said around 90 per cent his firm's customers are in the 23- to 45-year age bracket. They are generally tech-savvy and communicate through phones regularly. "So, by design, digital lenders are in a better position during these times (of the pandemic) than a lender who operates through a legacy branch model," he says.

The Reserve Bank of India last week announced a moratorium of three months on payment of installments with respect to all term loans, outstanding as of March 1, 2020.