Why FlexiLoans decided to focus on digital lending for SMBs

The Turning Point is a series of short articles that focusses on the moment when an entrepreneur hit upon their winning idea. This week, we feature Mumbai-based digital lending platform Flexiloans helps SMEs get loans for their working capital in a short time
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Founded by Deepak Jain, Manish Lunia, Ritesh Jain and Abhishek Kothari, FlexiLoans provides quick and transparent funding access to millions of small businesses.

Since its launch in 2016, FlexiLoans has issued over 30,000 loans worth about Rs 1,700 crores directly and through 50 partners catering to over 1,600 cities in the country. Its average loan size is Rs 5 lakhs with an interest ranging between 1 to 2 percent.

Its co-founders attribute its growth to the macroeconomic challenges and FlexiLoans’ focus on catering to a segment—small businesses—that often suffer from poor access to capital.

“FlexiLoans was a result of multiple series of events including what was happening in the economy that contributed to the founding of the company,” Ritesh tells YourStory.

L-R - Manish Lunia, Deepak Jain and Ritesh Jain, Co- Founders of FlexiLoans

The idea that led to FlexiLoans

After graduating from ISB Hyderabad, the co-founders had moved to different parts of the world to pursue their careers. Ritesh was in Delhi, Manish and Deepak were in Mumbai and Abhishek was in London.

For Ritesh, an incident with his Uber ride to office triggered the idea for a digital lending platform for small businesses. He says that one of the Uber cab drivers who would usually drive him to work was suddenly unavailable for a week. Ritesh later found that the driver had been unable to work due to water damage to his phone.

“It surprised me when a mobile phone that cost Rs 10,000, when not working, it cost Uber drivers their daily earning of Rs 4000 or even 5000 per day and until the phone was working,” he adds.

“When correlated this with businesses, due to lack of working capital they are not able to grow. They do not have money to invest in working capital,” said Ritesh.

Co-founder Deepak, who is from a family of jewellers, found his inspiration for the startup when he saw business owners pawning jewellery for loans. Similarly, Manish and Abhishek, who were also from business families, saw that people were not investing in business due to a lack of capital.  

“We stitched together all of these and saw the huge need that people are not investing in working capital. Also that need had not been met by banks and financial institutions,” Ritesh said. “This made them go to moneylenders and pawn jewellery for money.”

Their market research in 2015 showed that close to 90 percent of SMEs (small to medium enterprises) do not receive finance from organised players as these are smaller ticket size loans, about 5 lakh and below. This is because the bank and financial institution process were longer and complicated.

Mumbai-based FlexiLoans started with the business model of catering to B-B-C (Business to Business to Consumers), with C being Merchants, as it wanted to cater to the merchants associated with large companies.

The platform's Evolution

“The problem we are solving is a tough problem to solve,” says Ritesh. “There are a lot of parameters to be figured out, such as some industries can be very seasonal while some would need a longer gestation period.”

Initially, FlexiLoans partnered with businesses like Amazon, Flipkart, Shopclues which had a large pool of SMEs. This was the company's initial customer acquiring strategy.

It then began a direct origination channel via its website.

“The first change happened for us that when we started approaching customers directly, that changed slightly the DNA of the organisation at that point in time because then when you reach out to customers directly, suddenly our funnel expanded multi fold,” says Ritesh.

FlexiLoans has about one lakh customers directly applying through the website in a month, the co-founder says.

“But we have to stay true to our DNA to be a technology company and be digital first. We have been 100 percent digital, whether digitally through our partners or sourcing directly,” he adds.

After the expansion in the origination, the second evolution took place in the product. FlexiLoans started offering top-line overdraft, invoice financing solutions to name a few.

According to the co-founder, macroeconomic challenges since 2016—including demonetisation, the introduction of GST, the IL&FS crisis, COVID-19 pandemic and now inflationary situation, have helped the startup grow.

“But these macroeconomic challenges we faced were very important and gave us a lot of learning how to handle them. But I must say that each challenge made us stronger,” he said.

In particular, it was the Infrastructure Leasing & Financial Services (IL&FS) crisis in 2018 that unlocked opportunities for FlexiLoans.

The startup shifted its strategy towards co-lending.

As capital was very constrained during this period, co-lending was brought in as a measure toward risk mitigation and diversification. So now, instead of booking 100 percent loans in FlexiLoans book, it partnered with banks and NBFC and booked loans in their balance sheet.

Amid the pandemic, FlexiLoans decided to invest in technology to streamline its processes.

Currently, the company aims to enhance its user experience by becoming an embedded finance player for SMBs. For instance, a small business owner who is taking credit to buy goods would be able to pay via FlexiLoans credit.

The future

“We are a technology company because we wanted to play within the regulations we converted that into NBFC but our core still remains technology,” Ritesh adds.

In early June, the startup raised $90 million as a part of its Series B funding round from Denmark-based private equity firm Maj Invest, UK-based fintech investor Fasanara Capital and few others.

“Most of these funds will be used in two ways,” says Ritesh. “One will be used for developing our loan books and also for the launching of our BNPL service. The other is an investment in technology and scaling of operations.”

Edited by Affirunisa Kankudti