Serial entrepreneur Manish Khera is Happy to give short-term Loans to unbanked micro-enterprises

Happy Loans offers paperless business loans as low as Rs 2,000 for as short a period as 30 days to consumers who do not have access to mainstream banking.

Startup: Happy Loans

Founder: Manish Khera

When it was founded: 2016

Where it is located: New Delhi

Sector: Fintech

The problem it solves: Tailor-makes loans for small entrepreneurs and disburses them through a paperless process

Funding: Debt funded up to Rs 42 crore

Lokesh Shetty runs a mom-and-pop store in Jayanagar, Bengaluru; he buys products worth Rs 50,000 every month, and sells them for a small profit. Unable to get any credit from distributors for his working capital needs, Lokesh often resorts to borrowing from informal sources. Then, he has to deal with the loan sharks who lend at 5 percent a month, and literally breathe down his neck.

Like Lokesh, a majority of Indians do not have access to credit. The mom-and-pop store universe in India is 12-million strong, while the number of SMEs is pegged at 38 million. With formal banking reaching only 40 percent of this universe, fintech entrepreneurs like Manish Khera are betting on this under-served bunch of consumers.

Manish had earlier invested in credit and digital financial services company Yatra Tatra Sarvatra, which was acquired by Airtel, and Manish served as the CEO of the new entity - Airtel Money.

His new startup - Happy Loans – focuses on helping small businesses. Manish says his journey with Yatra Tatra Sarvatra – basically the data he derived from it – led to the formation of Happy Loans as he discovered that businesses needed loans just as much as individuals did.

When setting up Happy Loans, Manish also set up ArthImpact, a company that would give loans to individuals. He realised that if he could serve individuals with paperless loan approval and disbursal, the same could be done for small business owners too.

Happy Loans acquired a small NBFC, which enabled it to begin lending to enterprises as it then had the required licence.

“These individuals and their businesses were left with no option but to turn to unstructured moneylenders, who offered very rigid terms and expensive products. Disrupting this situation with a customised product and a great customer experience was an opportunity I wanted to explore and Happy Loans was born,” says the 48-year-old founder of Happy Loans.

Happy Loans collaborates with money transfer networks, merchant acquirers, and other partners to offer instant, short-term business loans for business owners. The startup offers loans as small as Rs 2,000 and for periods as short as 30 days. People seeking loans can access the service from their phone, and have options such as daily repayment and flexible tenure.

The beginning

Manish has been working in the field of digital payments for two decades. He started with Fino Paytech, and then moved on to Yatra Tatra Sarvatra, which was subsequently acquired by Airtel. His work had involved studying the problem of financial inclusion, and how it could be best resolved through the use of digital technologies, especially the internet and mobile phones. During this time, he realised that one of the biggest challenges for financial inclusion in India was the lack of access to mainstream banking services.

“This segment is neglected partly because conventional companies find this sector hard to access,” he says. Manish adds that Happy Loans decided to partner with other companies that were working to digitise the payments ecosystem in local markets with POS and banking channel networks.

Happy Loans’ partners include Mswipe, Eko, Storeking, Instant Pay, Jaldi Cash by Wiezzman Forex, Payworld by Sugal & Damani, and Ongo. These companies help acquire customers for Happy Loans.

Incidentally, the company launched just a month before demonetisation in October 2016.

“We were excited with the digital vision for our country and started to focus on building our technological system. We developed an AI-driven algorithm to assess the creditworthiness of potential customers,” Manish says.

Happy Loans tied up with Mswipe and Eko, and disbursed its first loan in February 2017. In a little over a year, it has disbursed over 14,000 loans to more than 7,000 micro-enterprises and has added eight more partners in its mission to reach every micro-enterprise in the country.

The startup has lent over Rs 47 crore so far; 5,000 of these loans carry a value of Rs 22 crore. It claims to have a retention rate of 43 percent, which shows that many of its customers have already come back for credit in a short period of time. Happy Loans charges interest in the range of 13-20 percent per annum depending on a host of factors such as creditworthiness, tenure of the loan and the nature of the business.

To facilitate this, Manish raised over Rs 42 crore of debt funding from three lenders, friends, and family.

The business model

The evolution of Happy Loans’ business model was based on barriers faced by micro-enterprises. There were three barriers to the free flow of credit that the company had to overcome while designing its business model.

• Reaching the customer and getting data to evaluate creditworthiness. Happy Loans accomplished this through its partner network of merchant aggregators. It has live APIs that integrate with the systems, giving Happy Loans access to rich data on their merchant’s operations and financials.

The startup leveraged this data to evaluate credit rating using unique proprietary AI and machine learning-driven tools, taking more than 1,000 variables into account. This keeps its NPAs very low. The company factors variables like the nature of business, lean and peak seasons, region, weather, festivals, gender, age, count of family members, sales, and repayment behaviour on previous loans with Happy Loans (if any) to determine creditworthiness. This lets it provide targeted, customised, and instant credit solutions.

• The second barrier was convenience. For most micro-enterprises that Happy Loans lends to, the process of receiving credit from conventional banking and financial institutions was laborious and needed much documentation.

By leaning on data from its partners and using a robust digital platform, Happy Loans was able to provide loans in real time. Small businesses find this credit instant, convenient, and useful. “We have also developed an application to enable easy access to our more digitally-enabled customers so that they can access our credit in just a few clicks on their smartphones,” Manish says.

• The third barrier was the terms of credit. Micro-enterprises were often forced to take credit on an ad hoc basis from local moneylenders. This led to onerous and punishing interest rates, and unfair terms that suited the lender and not the micro-enterprise.

Happy Loans decided to rethink the credit it wanted to offer customers. Instead of giving long-term loans for which interest piles up, it decided to offer unique short-term loans. It keeps innovating with a range of credit products, and has added various types of loans such as weekend loans, 90-day loans, 30-day loans, single-day loans, and so on.

The target for the end of next fiscal is to disburse 150,000 loans cumulatively to over 100,000 micro-enterprises. The company's strategy to achieve the kind of scale required to reach this target needs 40 more collaborators, taking the number of channel partners to disburse loans to 50.

Happy Loans competes with the likes of Capital Float, but claims that in its segment, where entrepreneurs borrow Rs 35,000 for working capital, competition does not exist.

Mohandas Pai, Founder of Aarin Capital, says, “Fintech requires scale and inclusivity is what everyone is striving for. Hopefully, the sector is able to scale with lower NPAs.”

Manish believes he can bring a smile to the face of entrepreneurs working to build their business. That’s a Happy Loan for you!

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