There’s a Buzz Around Hybrid Lending Model at Fin Startups
Firms now look to disburse loans both on their own as well as through financial partners
Bengaluru: Several digital lending companies are moving towards a hybrid model that will have them disbursing loans both on their own as well as through financial partners such as banks.
Lendingkart, which has been lending through its own books as a nonbanking financial company, is set to start co-lending with banks and other financial firms through a marketplace platform in six-nine months, chief executive Harshvardhan Lunia said.
On the other hand, KredX, an invoice discounting marketplace platform for small and medium enterprises, has applied for an NBFC licence. Consumer lending company ZestMoney is also seeking to become a non-banking financial company.
“A hybrid model further enhances stability, diversifies the portfolio, and reduces default risk on the deals,” said Anurag Jain, cofounder of KredX. TC Meenakshisundaram, managing director of IDG Ventures India, calls this transitioning a natural evolution.
“While lending companies should initially focus on building credibility in one aspect and prove that the model works, they should eventually move up in the value chain through a hybrid structure,” he said. While a marketplace offers a risk-sharing and reward-sharing model, lending through your own books shows that the company has skin in the game, he added.
Companies are drawn to the hybrid model chiefly seeking improved growth prospects. For Lendingkart, Lunia said, the marketplace model will open up more avenues for funds.
Ahybrid model is viable typically after a 12-18 month cycle, ZestMoney CEO Lizzie Chapman said.
Capital Float, which started its marketplace model last year and currently colends with five financial institutions, is set to scale up loans disbursed through its partners to 50% of its total disbursals by the end of this fiscal year. Currently, that’s at 40%.
For each loan disbursed through the marketplace, too, Capital Float contributes 30% of the amount. It also manages the entire loan process from originations to servicing and collections.
“The fact that we are a regulated NBFC and have skin in the game gives our partner institutions a great deal of comfort in the strength of our underwriting processes, as well as compliance with key norms such as KYC (know-your-customer),” cofounder Sashank Rishyasringa said.
However, there are some challenges in hybrid lending models, especially because of a number of moving parts and as it can get tough to manage different platforms, according to Jain of KredX.
NOT ALL ONBOARD
Some digital lending companies such as BankBazaar, which runs a marketplace, and LoanTap, which lends on its books, do not see the need for a hybrid model.
“Our vision is to partner with banks to become the world’s largest digital marketplace to offer paperless financial services. Hence, we do not have plans to become an NBFC,” BankBazaar CEO Adhil Shetty said. As for LoanTap, CEO Satyam Kumar had this to say: “We have been able to leverage equity and long-term debt, so we are not considering (a hybrid) model. We do not see value there as long as we are able to raise debt within permitted norms.”
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