In an interview with Shweta Papriwal, Editor, indiainfoline.com, Manish Lunia said, “FlexiLoans is a 100% on-balance sheet lender. We use our equity (raised from individual investors) & debt (raised from various banks & big NBFCs) for onward lending to SMEs.”
What is the estimated market size for unsecured short-term loans for SMEs in India?
As per the Omidyar-BCG report on Digital MSME Lending in India, total 2018 MSME credit demand is estimated to be $600bn. Although estimates may differ, our analysis shows that the addressable short-term debt market for MSMEs stands at ~$150bn.
Apart from SMEs & MSMEs, who are your target audience?
We provide only business loans to SMEs and that is our target audience. A typical customer for FlexiLoans would be a trader, distributor & retailer who
- Sells on Ecom marketplaces such as Flipkart, Amazon
- Uses a POS machine for collecting payments
- Supplier/vendor to a large corporate
Loans against invoices: FlexiLoans offers a line of credit to customers, these could be either Vendor Financing or Dealer Financing. The precursor to disburse money is a partner (buyer) approved invoice in vendor financing and a dealer approved invoice in dealer financing.
For vendor financing, the collections are from the receivables pool of the borrower and for dealer financing it is from the borrower (dealer/distributor).
Amongst many, the primary risk in vendor financing is that the debtor (supplier's buyer) will not pay due to financial inability or any conflict between the supplier and the buyer that may lead to non-payment of dues by the buyer.
Dealer financing however is a naked risk product, the complete risk is on the borrower's ability to sell and willingness to repay.
What is the Business model of FlexiLoans.com? What is the average duration of loans and interest rate bracket? What is the average ticket size?
FlexiLoans is a 100% on-balance sheet lender. We use our equity (raised from individual investors) & debt (raised from various banks & big NBFCs) for onward lending to SMEs. The revenue is generated from the spread earned in between. For eg: We have raised debt at 12% from a big bank and used that money to on-lend to various SMEs @22-25%. The spread generated here is 10-13% and that’s our revenue. Our average tenor for loans is 14 months and interest rate charged is 1.25-1.5% per month. Our average ticket size is ~INR 325,000.
Where all (Geographical spread) does FlexiLoans lend and if any further service expansion plans?
FlexiLoans is a truly pan-India lender. We have disbursed loans worth >Rs.400 crs to small businesses across 700+ cities without having a single branch! Today, we receive applications from >75,000 SMEs across 1,500+ cities every month.
Which sectors are your primary focus?
Majority of our customers operate in 3 sectors – Fashion & Apparel, Electronics & Electricals, Pharma & Healthcare. Although, we do provide loans to SMEs in other sectors as well.
How different are you from you immediate competitors offering similar customer service and into the same lending pattern? Who are the international players in similar business? What has their experience been and what learning you have taken from their success of failure stories?
FlexiLoans stands out from competition in 3 major aspects: Technology, Products & Partnerships.
We are the leaders in using technology and risk models that focus on alternate / surrogate methods for scoring customers. FlexiLoans has 20+ proprietary data science assets and 5 patentable algorithms across the loan life cycle. We have a dedicated ‘Deep Learning and Technology Applications’ team to solve complex problems across image processing, scoring, digital extraction, credit analysis and financial analysis through AI / ML technologies. Across the loan life cycle, we have ground-breaking innovations integrated at each step.
FlexiLoans is the only fintech to have an entire product suite to service the lifecycle of an SME – we offer 1) Term Loans, 2) Loans Against Card Receivables, 3) Invoice Financing, 4) Pay Later (Channel Financing), and 5) Drop Line Credit Facility. FlexiLoans follows a multi-channel multi-product approach to maximize customer touchpoints & lifetime value.
Most competing lenders are developing distribution network either through branch & direct route or via DSAs/brokers. At FlexiLoans, we have invested in developing distribution network through strong integration with large digital platforms (Flipkart, Amazon, Pine Labs) or large corporates (such as TVS, PI Industries, etc.) which gives us access to millions of SMEs in their network.
We have deepest entrenchment with all major Ecom players (Flipkart, Amazon, PayTM) as channel partners. Besides, we have a tech-enabled platform – Creditperiod.com – for supply chain financing – wherein multiple corporates are onboard with high adoption signals. We are the biggest lenders on the ecommerce ecosystems as well as on supply chain ecosystems.
FlexiLoans has a very strong focus on scaling partnerships through technology integrations and real time decisioning. We have built a strong technology integration barrier which not many others can replicate.
How have you been able to measure the potential for this business and why are Banks (Traditional lenders) not been able to fill this demand gap?
Access to finance is a major hindrance to MSMEs in India. Traditional Banks & NBFCs are unable to meet this demand due to endless paperwork (leading to high TATs), rigid credit policies (putting pressure to pursue only high-ticket sizes) and physical branch-led model (limiting the reach).
FlexiLoans is trying to solve this very problem by digitizing the entire process and creating innovative & flexible lending products. Being a digital lender, we can reach the farthest corners of the country, provide loans as small as INR 50,000 ($700) and disburse loans within 48 hours of loan application. In fact, as of Mar’19, FlexiLoans receives applications from 1,500+ cities & towns with a branchless presence and our average loan ticket size is Rs325,000.
Another major problem for MSMEs is lack of a credit score/bureau score. FlexiLoans has devised a proprietary score called ‘True Score’, which assesses surrogate data of the business and helps in lending to MSMEs hitherto ignored by most banks & NBFCs. 51% of our borrowers are approved by ‘True Score’ but rejected by banks because of insufficient bureau history.
How many employees in Mumbai office? How do you plan to further construct and organize you hiring policies?
Currently, we are a 230+ team in Mumbai. Hiring is a very serious business for FlexiLoans. With the current scenarios wherein, job market is highly competitive and it is critical for everyone to find and hire the right person for the right job, we plan to implement hiring framework which will be based on:
- Hiring Principles of FlexiLoans
- Structured Behavioral interviews
- Online Technical Assessment based on job role
Ways FlexiLoans.com are trying to raise funds? Are you looking at raising fund any sooner? Any plans for IPO?
Equity: We have raised over Rs.100 crs in equity commitment from marquee bankers such as Sanjay Nayar (CEO, KKR India), Anil Jaggia (former CIO, HDFC Bank), Siddharth Parekh (Co-Founder, Paragon Partners), etc.
This was one of the highest first-round of funding for a startup in the country at that time.
Debt: We also have debt lines of >Rs.150+ crs from multiple banks/NBFCs and has the best Asset-Liability Management in the fintech lending space.
FlexiLoans is well-funded & not looking to raise funds any time soon. Although, we keep meeting investors.
We do not have any plans for an IPO in the near-term.
What is the goal of your company for the next 5 years?
Over the next 5 years, FlexiLoans intends to make its vision of ‘Loans @ a click’ the norm.
By FY24, FlexiLoans intends to disburse >5,00,000 loans to SMEs pan-India. We want to cement our leadership in the ecosystem/partner-based lending.
FlexiLoans would tap into newer pockets of lending, especially the online aggregators across segments such as foodtech, e-groceries, furniture, B2B Ecom, etc.
Continue to be the employer of choice. FlexiLoans was awarded ‘Great Place to Work’ certification recently – the only fintech lender in India to have such a recognition.
Increase female representation in the company. Currently, FlexiLoans has about 34% women. We would like to take this to 50% over the next 2 years and maintain it.
We would like to bring down the current TAT of 48 hours to 1 minute over the next 5 years. FlexiLoans is already building tech & data science assets that would increase the level of automation across the value chain & helps us achieve this.