 "Online lending firms see higher loan growth on card transactions")
Around October, digital lending platform, Capital Float was rolling out a plan for restaurants and shops to take loans against their point-of-sale machines.
The repayment was to be made through transactions done on the machine, a move that helped Capital Float hit pay dirt as it saw business scale up fast after demonetisation. As these shops and restaurants saw improved sales due to acceptance of cards amid the cash crunch, they were able to repay loans faster to Capital Float. Lending to this portfolio grew three to four times since November and it also saw new customers adding up as they built transaction history that helped them raise funds for the company.
“We saw loans grow three to four times against the PoS machine,” says Gaurav Hinduja, co-founder of Capital Float, “In the next five to six months we will see two to three times growth in people wanting loans.”
India’s shift to a formal economy has hastened since the Narendra Modi government withdrew 500- and 1,000-rupee notes as legal tender in its fight against black money. Since then, the narrative has changed to move towards a cashless society, even as the government struggles to get enough cash to banks and ATMs in order to enable people to withdraw.
At the same time, lending companies such as Capital Float and its rival LendingKart are seeing growth from small firms. Lendingkart, an online portal, gives small-term loans of around Rs 4-5 lakh for 3-12 months. The company is looking to close the year with Rs 500 crore in disbursed loans as compared to Rs 125 crore last year.
Harshvardhan Lunia, co-founder of Lendingkart, says that while luxury goods manufacturers have seen a dip in sales, those dealing with essential goods remain unaffected. Many SMEs in India are involved in manufacturing essential goods such as small bags, food items, footwear, and pens.
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Lunia takes an example of a Kirana shop or the small neighbourhood store selling essential goods to explain how the informal loans will shift to the formal sector.
He says a shopkeeper doing a business of Rs 10 lakh would earlier make half the payments in cheque and the other half in cash. For cheque payments, the shopkeeper would come to companies like lendingkart or formal loan institutions. For his cash business, the shopkeeper would go to friends or family or money lenders.
The company gives loans to small and medium enterprises as well as e-commerce vendors in Tier-2 and Tier-3 cities, who lean heavily on the local money lender for transactions that are made in cash.
“Now, with demonetisation, a lot of people who were taking cash payments earlier want bank payments as friends and family do not have excess cash with them to lend and the business of money lenders has totally stopped. So all of this will come to the banks and hence the demand for loans will increase,” says Lunia.
He says, while the shopkeeper’s business will come down from Rs 10 lakh to Rs 7 lakh due to the instability, the demand for loans from SME will increase from Rs 5 lakh to Rs 7 lakh. Lunia says, leads (people wanting to take loans) post demonetisation have surged but conversions have reduced.
“This is because we have to be much more cautious. In loan terms, the amount has reduced and the demand of longer tenure to stabilise and repay has increased,” added Lunia. Lendingkart plans to disburse Rs 1,600 crore to Rs 2,000 crore next year.
“The demand will go up will mainly because working capital is drying up. Generally, informal lenders come into play in this situation, but then they all deal in cash. So they will come to us for these requirements henceforth. The increase in uptake will be there for the next 3 to 4 months, post that the rate of growth will stabilise,” Hinduja added.