The fundamental premise behind alternative lending is clear: provide cheapest-in-class access to credit to borrowers, who may or may not have access to credit from traditional banks or NBFCs.
December 26, 2016
The fundamental premise behind alternative lending is clear: provide cheapest-in-class access to credit to borrowers, who may or may not have access to credit from traditional banks or NBFCs. Let’s take two examples:
1) Aditya Kumar is a 29-year old software engineer at Sigma Infosolutions – a mid-sized IT solutions provider based in Bangalore. He has never taken a loan in the past – always managing his expenses within his earnings. He has recently been promoted and received a large increase in his salary, and he wishes to move to a larger apartment. However, he needs 2.5 lakhs to pay the rental deposit on the new apartment he wants to move into.per
Aditya applies to HDFC, ICICI and Axis bank – all of whom reject him as he doesn’t qualify for a Personal Loan in Bangalore, because:
a) He has never had a loan in the past, and hence has no credit score or history (“CIBIL” score as it’s commonly known)
b) His employer, Sigma Infosolutions, is ranked as a “Category C” (or high-risk) company by most banks & NBFCs.
Aditya applies to Qbera.com (a marketplace alternative lending platform) for a personal loan – and gets approved, because they evaluate his income, stability, spending patterns – and deem him to be a creditworthy customer. Aditya gets his money within 24 hours and can now move into his dream home!
2) Aditi Kumar is a 40-year old executive at an Infosys based in Bangalore, earning a salary of 1 lakh per month. Aditi has had a few rough years, and several unexpected expenses arose 1 year ago, causing her to miss a few payments on her credit card. Her credit score is below 720, the threshold for any bank to even consider her for a loan.
Aditi wants to go on holiday to Australia, for which she needs an advance of 3 lakhs. The company, as a matter of policy, does not give advances to its employees. Even though Banks & NBFC’s will happily give personal loans to Infosys employees – because of her credit score, Aditi knows that they will most likely reject her (and further worsen her score). Aditi applies to Qbera.com for a personal loan – and is approved, because Qbera recognises that her delayed payments were an anomaly, and that she is a financial responsible individual. Aditi takes the loan and goes off to Australia, repaying it in easy EMIs on her return.
Most banks & NBFC’s in India still adopt traditional measures in assessing the risk of potential applicants. They will reject applicants for generic reasons, which may include: little (or no) credit history, the “quality” of the employer you work for, or even the zip code that you live in! It also takes banks & NBFC’s significant time to approve & disburse loans – even up to a week (or more) in some cases. This causes problems to people who require loans for exigencies.
This is a huge opportunity for alternative lenders like Qbera, who can use alternative data & technology to assess non-traditional parameters to assess a person’s creditworthiness, and provide access to loans in a quick, reliable and transparent manner.