This Start-up Matchmakes SMEs And Banks To Solve Lending Issues
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Over tequila shots late one night five years ago, Gaurav Anand and Lucas Bianchi—then Moody’s executives—decided to scratch their entrepreneurial itch and solve a big problem facing small and medium enterprises (SMEs) across the world: Long turnaround times for loan disbursements.
They looked up for a market that was large and where the problem seemed to be most acute, and zeroed in on India.
“We believed that if we build the right solution for a large problem, that will have a meaningful impact on the whole ecosystem,” Anand told Entrepreneur India.
They identified two core problems in the SME lending sector—finding the right SME profile for a lender and vice-versa, and underwriting low-risk loans—and came up with the idea of Namaste Credit.
Marketplace for SME Loans
Established in 2015, Namaste Credit makes it easier for SMEs to receive loans through formal banking channels while ensuring banks receive clean loan applications bearing no red flags or major credit risks.
The Bengaluru-based start-up currently connects over 80 financial institutions—including the likes of HDFC Bank, ICICI Bank and Axis Bank—to SMEs on its marketplace platform.
Using artificial intelligence and machine learning, Namaste Credit also cuts down on loan application processing time, making it faster and cost-efficient for banks.
Till date, the company has helped to deploy more than INR 2,000 crore in loans to SMEs, averaging around INR 100-150 crore per month.
The company brings SMEs and banks together on its marketplace using intelligent analytics that match an SME’s requirements with that of banks which are most likely to lend.
“We are the only platform in the country which has upwards of 55 per cent loan conversion rate in an SME market where typically, the average is around 15 to 20 per cent conversion,” Anand said.
To achieve the conversion rate, Anand said, three processes are put in place. First, the loan applications are scanned and converted into digital copies using Namaste Credit’s in-house tech, a process that takes about five minutes, according to the co-founders. If done manually, such a process would likely take a few hours, if not more. Once the data extraction is over, the platform uses analytics to arrive at a credit assessment before the final step, which is matchmaking.
Namaste Credit also licenses its credit assessment automation platform to banks, on a software-as-a-solution basis, which helps them process loans faster.
Solving a Problem
Nearly 40 per cent of Indian SMEs are forced to borrow from informal sources, which on average charge 2.5 times higher interest rates compared with the formal sector, a recent report by Omidyar Network and Boston Consulting Group cited. The report added that the lack of formal lenders presented an opportunity for digital lenders.
Online lending to SMEs is expected to increase between 10 and 15 times by 2023, to nearly INR 7 lakh crore annually, the report added.
Post India’s demonetization of INR 500 and INR 1,000 currency notes last year, lending from the informal sector has been hit, marking a sharp rise in demand from the formal space, according to Bianchi.
Revenue and Profitability
The company makes money on its marketplace by charging banks for every successful loan they enable. For licensing its technology on a software-as-a-service (SaaS) basis, the company charges banks on an annual basis, and an additional fee per transaction.
The company currently has 25,000 SMEs on its marketplace platform.
Anand said the marketplace business was already profitable, while the SaaS unit had not yet started adding to its bottomline. However, the company expects the latter to break even, or become profitable, in the next 6-12 months.
Bootstrapped Before Series A
Namaste Credit raised $3.8 million in series A funding from Nexus Venture Partners last year. It had raised nearly a million dollars in seed capital from family and friends, and was bootstrapped till it reached series A.
The founders wanted to prove the model and build the core business before reaching out to investors.
“It wasn’t just on paper, we could demonstrate the product in actual pitch meetings which makes a big difference,” said Bianchi.
Both Bianchi and Anand are optimistic about expanding internationally but said that in the near term, expansion within India would keep them busy.
Namaste Credit has already solved a lot of problems in the Indian market that would have relevance in international markets as well, Anand said.
“In the next 12 months, we want to start our global expansion and global outreach,” he added.