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Building a ₹7500 Cr AUM Fintech | Harshvardhan Lunia (Lendingkart)
109 Plays14 days ago
"The customer is the CEO of the company; he can fire everyone."
This core belief drove Harshvardhan Lunia's journey in building Lendingkart. He emphasizes that obsessively solving the customer's problem—be it the need for speed, transparency, or convenience—is the ultimate key to building trust and a successful financial services business.
Harshvardhan Lunia is the Founder & CEO of Lendingkart, a fintech platform transforming SME lending in India. An ISB graduate and Chartered Accountant, he leveraged his background in banking and SME credit advisory to launch Lendingkart in 2014. Lendingkart has since disbursed over ₹20,000 crores to more than 3 lakh customers across 4,500+ towns and cities in India, achieving a total AUM of ₹7,500 crores (with ₹5,500 crores via co-lending) by FY24.
Key Insights from the Conversation:
✅SME Lending Pain Points: Traditional lending for SMEs suffered from slow processes (3-4 months) and lack of transparency, creating a market gap. Lendingkart focused on speed (hours/days) and transparency from day one.
✅Data Over Tradition: Realizing traditional financial statements were often adjusted for tax purposes, Lendingkart pioneered using bank statement analysis and cash flow data for underwriting.
✅Tech-Driven Underwriting: The platform evolved from rule-based systems to sophisticated algorithms trained on billions of data points to assess risk and determine loan terms, achieving high predictive accuracy (97.5%).
✅The Rise of Co-Lending: Partnering with banks and larger institutions (co-lending) became crucial post-COVID, allowing Lendingkart to scale distribution while sharing risk and capital. By March 2022, 80% of business was co-lending, reaching a 25/75 (own books/co-lending) AUM split in FY24.
✅Distribution is Key: While underwriting and collections tech are vital, building trust and reaching customers across India (distribution) is the ultimate differentiator in the absence of a large legacy brand or branch network.
✅Fundraising Conviction: Raising capital involves storytelling and unwavering conviction in your vision, especially when building something new. It's an exam where you must clearly articulate why your approach will work. Harshvardhan even shared his unique approach of pitching using a whiteboard instead of presentations.
#Lendingkart #HarshvardhanLunia #FintechIndia #DigitalLending #SMEFinance #MSME #NBFC #StartupIndia #Entrepreneurship #IndianStartups #FounderThesis #BusinessPodcast #VCFunding #CoLending #DataAnalytics #Underwriting #FinancialInclusion
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Transcript
The 999-Day Rule of Entrepreneurship
00:00:00
Speaker
I had given out given my myself 999 days. If you have 999 days, you don't figure that out a business or a model. Shut it down and more on and try something else. Every one of us has gone through a process where we've been grilled, where we've not had money and where people have told this won't work, that won't work.
00:00:17
Speaker
Customer is the CEO of the company. He can fire everyone in the company.
00:00:35
Speaker
I've been a small business owner for more than 20 years and there have been times when I did not have money to pay salaries. How I wished I could get a bank loan to solve some temporary cash flow problems but it was so hard.
00:00:47
Speaker
Someone like Harshwardhan, the founder of LendingCart, is solving exactly this problem for likes of small business owners. He's built LendingCart into a fintech giant with about 7,500 crores of a loan book, more than $200 million raised till
Introduction to the Founder Thesis Podcast
00:01:01
Speaker
date. All of this on the back of a very smart strategy of using data, technology, and distribution.
00:01:08
Speaker
This is a masterclass on fintech scale-up.
Inspiration from Childhood and Family
00:01:11
Speaker
I'm your host, Akshay Dutt, and this is the Founder Thesis Podcast.
00:01:25
Speaker
So, Harish, can you like connect the dots and tell me how you became an entrepreneur? ah So, Akshay, fair question, right?
00:01:38
Speaker
I've heard people say that, is it, are you born with it? Do you just get into this? Or then you realize that you're you are but you're supposed to do it? or So not fixed, right? over ah But I think I still remember my parents telling me that when used to go for morning walks with my dad, right? or I used to normally ask him, why is this building so big? What is this building? What is this? What is this? And all those conversations I used to remember.
00:02:06
Speaker
And i still remember him telling you that I used to get enamored when I used to go to hotels, large hotels. right I would feel that they have created a place for staying of 200-300 people together. they are taking care of them.
00:02:20
Speaker
kindnnabi hiller and Because at home, I would feel that mom was doing a job for three-four of us. And it was a fantastic job, right? was taking care of all of us. And if somebody had extrapolated that into a very, very large business, it should have been such a good business and profitable business. And all of these guys are staying away from home. They are getting so much comfort and everything. in that mind, I was in mind.
00:02:39
Speaker
So I had that largesse or opulence in my mind that hotel is like this thing, next business and everything. So that was the early days. And I think then typically I come from a Marwadi Baniya community overall.
00:02:53
Speaker
So that was already there. And I have seen, it was first my father who was my, like I have a family that's like gold medal is a normal. normal in our family, right? Getting a gold medal, getting a first rank. Like if you, if anybody in my family, my brother, sister, my mom, parents would get second rank and the teacher would be more worried. That's the norm.
00:03:14
Speaker
But I was the black ship. I have never got a first rank in my life overall except one
The Entrepreneurial Journey Begins
00:03:19
Speaker
or two times, right? so that was there was born and brought up all those things happened but i had seen my father being a very well established professional in uh jobs and everything and then starting his own ca practice and everything and starting entrepreneurial ventures then my brother also took similar plans where he started where he was working with funds and everything and then started his own fund overall and thirdly then when it came to me i had also worked and everything and then i started it
00:03:46
Speaker
it was kind of in DNA Akshay and I think oh another thing that I realized was Akshay that all across my life ah we had a set pattern right of upbringing right while you and me were getting brought up right but I always felt that that journey me unfulfilled in sense that was still trying to figure out who Harsh was right but i have always heard that that journey left me unfuleded in the sense that i was still trying to figure out who hersh was right And I thought maybe something kind of an entrepreneurial journey will tell me or will give me an answer to who Harsh was and touch what it has happened.
00:04:24
Speaker
ah I'm finally starting to realize who Harsh is. So that's how also so all these quests of mine basically led me to entrepreneurship. ah Specifically, ah you know, tell me that moment when you took the call to quit a job, start a business. Was it with ah clear business plan or was it just yeah entrepreneurship? kney I'll figure out what to do.
00:04:48
Speaker
Yeah, that's a valid question. Because middle class upbringing was of a value, and I think When I was getting brought up, money was scarce. You had to have managed and things and everything. And I've seen that way.
00:05:04
Speaker
Right? Overall, the schooling was very cheap, the college education was very cheap and everything. everything But what happened is that I had a C.A. 2003, then I got a banking job. Right? So, at that time, got a banking job. Basically, it was...
00:05:17
Speaker
ah basically yata yeah that you got a professional job in banks and that was the thing at that time in I did CA and everything. That got a bank job. Then I started doing bank job.
00:05:29
Speaker
My brother in my CA days had told me that you should do sales job at least once in your life. That opens up a lot of horizons for you. So have gone through a relationship with sales.
00:05:41
Speaker
And I was a CA, I didn't so much attention but I learned it and liked it. right Interacting with people, meeting with people and I loved it and liked it. So that's it. Then I realized that people who were from better MBA colleges or better ah pedigrees, ah education pedigrees were getting better roles in the institution. So then the idea was, okay, let's go, MBA also try. Then ISB happened, I went to MBA.
00:06:00
Speaker
Then the idea was, if ISB is can I get an abroad job, right? And that will be like cool. okay boy Being there, done that, it means that it's done. So touchwood, that's it. I got a lot job in London in corporate banking overall. that's it.
00:06:15
Speaker
When I got there, then you started evaluating, right? Was it worthwhile not worthwhile? And all the efforts that you had put in till 25, they were all for that. And are you satisfied or happy with it?
00:06:28
Speaker
So after two years in London, I kind of felt that this whole life will not be i won't be able to do this for my entire life overall. So I think I was 27, 28.
00:06:41
Speaker
And more so the work also was not exciting. Staying over there and I missed the chaos in India, the hula boo at home and everything. I used to miss that as well. So that was there. the wars up safe And I was thinking, right? I was interacting with friends, family, what's going on? What's going on? What's going on?
00:06:58
Speaker
I think the guidance from them was that we are middle class, people go to London, they get settled, after coming back, there is no more life happens.
Challenges in Early Consulting and Growth
00:07:08
Speaker
Typically, you would come with parents that got married by then, right? So I had a set of in-laws who were also worried, right? Because in-laws had got married their daughter to a London-based banker and suddenly he's coming back to India and not having anything. Businesses are not easy, right? Obviously, entrepreneurship is not easy. Businesses are not easy, right? Overall.
00:07:23
Speaker
what is youja But waha rehiki ohan academy and know the frustration the level went too high. we go. this fact that I will not go back London again.
00:07:34
Speaker
ah neyapaa neyapa telegama ofkin that i will came out the battle and and nija bombng <unk> bawa is a which is fine So I came back to India and started.
00:07:46
Speaker
And had lending I had a lending in HDFC and Standard Chartered Bank. So I realized that this was an open space. I was CA, so I could do all the projects and finance. In the early days I used to remember that I used wear suits in London.
00:08:05
Speaker
I used to stay in Ahmedabad. Bombay Delhi, Bangalore, it was my hometown. to lodging board in cost meta I started practicing in Ahmedabad for MSME business. I used to go banks and And didn't realize it. People would ask me, why are you wearing suit? I said, sir, I like wearing a suit.
00:08:29
Speaker
feel good. And I was again 29 years old. was wearing a suit. So didn't realize ute realized in the york I was naive and I didn't realize it. I didn't have to wear a suit and everything. everything But it was my June only, right?
00:08:42
Speaker
First year, I didn't earn anything almost. So this and name mean file like business, and we just want to understand yeah A small businessman who wants a loan, and especially ah like a reasonably big-sized loan, for that documentation paperwork, which doesn't have its capability in othe to prepare everything, and which is where ah they use a consultant who helps them to prepare the documentation needed so that they are a approved for a loan.
00:09:13
Speaker
yeah That was your business. Exactly. un good documentation may help carro Go and the banks overall, submit documents to them, interact, engage with banks, give them all the information and everything, and then finally get them a loan.
00:09:25
Speaker
And post loan also, if they needed any help, we would go ahead and do that. That was an advice. And typically you earn a percentage of the loan disburse. It would range between half a percent to one percent of the loan amount.
00:09:37
Speaker
And what ticket size was loan? Like a couple of crores? Yes, I think it's been big for a couple of years. I didn't get big projects. In the initial days, it was like 25 lakhs, 50 lakhs also. I would have earned 25,000, 50,000 and that.
00:09:53
Speaker
But slowly, slowly, by third year, I was getting 2 crore, 5 crore, 10 crore proposals as well. But in those basically what would happen is the fees would be like 2 lakh, 3 lakh, 4 lakh. How much you can bargain and everything. But typically for micro business view, ah bja for MSLK we are doing micro it used to be small businesses.
00:10:12
Speaker
And the loan sizes would be in the range of 1 to 5 crore.
The Birth of LendingCart
00:10:14
Speaker
Correct. Okay, got it. so but and but he's like You said by by third, fourth year, you were getting bigger size clients.
00:10:23
Speaker
yeah Were you still ah like a solopreneur? Or was it like a team and a business? No, I actually no ah got a team early on Finally, I think while in 2013, six, seven people g team was there.
00:10:47
Speaker
So the story is that 6-7 people's team settled howahi and i was actually making closer to my London salary which was a large amount in uh if you don't figure out thing then basically you shut it down and move on so i had given out given myself 999 days right Malcolm Gladwell says as 10,000 hours but could you entrepreneurs have clearly defined there way if you 999 days you don't figure out business or model shut it down and move try something else given my myself nine ninety nine days right oh malcolm gladwell says as ten thousand hours but it goes you
00:11:20
Speaker
and pins have clearly defined it there very kegar if in nine ninety nine days you don't figure out of business or a model shut it down and more and try something else So by 999 days it was reasonably well doing.
00:11:32
Speaker
But my quest for myself hadn't stopped. right I said I could go to London without or ISB without doing this. And do I want to do this for the rest of my life?
00:11:43
Speaker
So I was thinking about that question again. In 2013-2014, basically a lot of young entrepreneurs, right my capital float, new growth had started registering NBFCs and were building kind of fintechs.
00:11:59
Speaker
Globally, 7-8, 6-7-8, China, US,
00:12:04
Speaker
So by 1314, we had two, three companies in the US who went for IPO over there, typically classified as you're talking of lending companies, lending companies. Exactly. Okay. contact worker did clean game worker the Now the companies are almost non-existent. They got sold and everything.
00:12:20
Speaker
but uh yeah so those companies went for an ipm that was the time where i thought maybe something like that could be built in india overall so i had my elder brother also for guidance family also for guidance and i spoke to few vcs and other people as well went out interacted with them and i realized this could be built so 2014 may Typically, the idea thought that we will start something like a landing cart and happened and then it's been 10 years now building this.
00:12:51
Speaker
So you knew from day one that this will be NBFC model because there are two ways to do it, right? You could also be a marketplace. Yeah. Like a platform where you're connecting. It was all of us took the NBFC, started building the NBFC. The idea was that, so one thing was clear to all of us that, uh,
00:13:17
Speaker
supply side of money always had to come from banks and large NBFCs right because they have the depositors licenses for us they will be the supply side demand side could be anything that they are not able to do right so that idea was that micro and small businesses ka every ticket size loan of five six lakh rupees the cost is very high for a large infrastructure branches hain log hain ush thera se so we were trying to optimize the OPEX out of it, gar if we through technology can solve for that OPEX overall, then we can build a company and solve for it.
00:13:50
Speaker
okay war out That was the entire idea that we started an NBFC and everything. But early days, the idea always was that, um I was the first one who kind of took the plunge where I had a technology company.
00:14:02
Speaker
I always believe that technology will be the main driver for lending card and then I made a NBFC subsidiary of it. My
Funding and Family Support
00:14:09
Speaker
two, three peers, other peers who started at that time just took one company overall and started it as an NBFC. But I always believe that there will be a technology business will have a kind of revenue separately and the NBFC will have revenue separately and will work it out. So that was the entire thought.
00:14:26
Speaker
But platform business, so yeah, 17, 18 platform businesses started picking up with payments also going up in India and stuff like that. But if you ask me, really, really the cool ending and the platform businesses are more so picked up after COVID, right? 2021, where the inflection happened, where people started realizing that meet and greet. touch and feel will go away there's no more point in setting up more branches and people actually don't want people interact or engage with people it has to be a digital process and that's where the entire digitization entire data entire online and everything has started happening much more fruitfully
00:15:05
Speaker
Okay. Okay. Interesting. um and So you you said you started with a platform company and the NBFC was a subsidiary. Did you have ah any role models? like Like what made you feel that you can build a platform first and then NBFC will have a separate revenue stream, platform will have a separate revenue stream?
00:15:28
Speaker
Yeah, as such if you ask me it was just a gut feel. a The idea right now I see that and I sometimes feel I miss out that I on one hand I'm a voracious reader of books right. I like reading books so I can read a book in five six hours and I love reading books and every time they'll be at my bedside some five six books but it's also that if liked it alone and then I'll leave alone and then I'll complete it but that's fine right.
00:15:54
Speaker
But on the other hand, I have personally started realizing that I wasn't too much of a communicator with people, right? Mentors, seniors and all those people, right? So now I am feeling that that is also a very great source of information, inspiration and everything, right? If you can go talk to someone who's already been there, done that, build similar businesses.
00:16:19
Speaker
At first, during my first six years, five, six years of our journey, Akshay, it was more gut feel only. That it will become a technology business and it will become a value of technology. Rather than complicating things at NBFC level. And I have always personally believed that we will do it in NBFC, but technology will the core of it.
00:16:40
Speaker
Okay. How much of your own capital did you put in to start? Because by that time you said you were earning... I borrowed from my father and brother almost a crore. Okay. Okay.
00:16:51
Speaker
And also said that you do it. If you don't want return it, I will earn it from the salary. But I think that was a good support and my having my father and brother understand business and know this business was very, very helpful.
00:17:07
Speaker
Especially my elder brother. Okay. So what did that one-coro do for you?
Innovations and Industry Impact
00:17:12
Speaker
but What did you but did you build? What was your zero to one? Yeah, that one crore actually helped me in initially piloting the company itself. right We gave out almost 49 loans of two one and a half to two lakhs out of that.
00:17:30
Speaker
First year almost I did not take any salary. The team salary. You had NBFC from day one for these? No, no. So these are like informally. Started lending card on 3rd April 2014 overall.
00:17:42
Speaker
two thousand fourteen but and uh uh we got our nbfc license in may 2015. okay it took a long time in that first one year you were building the processes policies guardrails and listing it out yeah yeah guardrails so we could we gave out 49 loans of one crore so that was there and uh uh rest of the expenses were being met by my earlier business overall whichever was running great three for i
00:18:15
Speaker
money and everything and everything and i think when i went out to people and told them that i have committed such money right and which was a large sum
00:18:25
Speaker
and i think when i went out to people and told them that i have committed such money right and which was ah large um for us as a family well at that time, quite a large sum.
00:18:37
Speaker
Overall, it gave confidence to others and other people as well that somebody who's committed this money is committed to business as well. So lending we say aksha is not a complicated business, right? dana or wapaa Only problem is that we had to streamline the processes, systems,
00:18:58
Speaker
timing of it right small businesses micro businesses timing is very important for small businesses, micro businesses, if you have a job, then you have pay for 15 days or 2 months, he wants money today or in at least 3-4 days so there's something that is running like a phone is running a particular design is running particular something is running He has to pay salaries, taxes, so that's the criticality that we understood. And I also personally have always felt that transparency is utmost important. When I used to do loans with banks, it used to take 3-4 months.
00:19:27
Speaker
but that's the criticality that we understood and we i also personally have always feel that transparrecies are most important when i used to do loans with bankitoo stick three four months But during that time, you would never know where the proposal is. right The bank manager or anybody would typically say that
00:19:48
Speaker
but it was just hearsay that we would console ourselves. And at the end of three months, somebody would even come and tell us that this proposal is not. But very few reasons or no explanations. I didn't want that to happen to micro or small businesses.
00:20:01
Speaker
We were very clear that let's give them some idea ideation on day zero. And if we can do the loans in hours, it's good. If we don't do the loans in hours or a few days for him, we say no to him and then he tries his other luck around. We are not saying that we will give you everything and everyone who comes to us will give a loan.
00:20:17
Speaker
But at least Nets not waste his time. If we can do the it. Very interesting. So basically you had that firsthand experience of the pain of small entrepreneurs through the previous business. So you understood transparency and speed are critical.
00:20:37
Speaker
Critical, yeah. Okay. Okay. Okay. ah You got your, about a 10 million funding, I think somewhere in 2015, early 2015, right?
00:20:49
Speaker
No, middle of 15 times. Yeah, I think early 15th, we had 10 million funding. iaza Correct. Six million of equity and four million of data. i agree, yeah. Okay, okay. So, that's a pretty substantial amount for ah such a young company. How did that happen? Especially for that time.
00:21:07
Speaker
Like, how did it happen? Yeah, so, I generally joke about Prabhu Kripa.
00:21:16
Speaker
and because 14, 15, a companies got IQ in US, UK. So there was a wave that was happening in India. And One of my peers had got two, three of the best VCs in the country.
00:21:32
Speaker
Right. Overall, they already went to their own and they had already got funded a year back. So two or three companies had got funded a year back with the rest of the best VCs. So people were already out there scouting in the market, similar companies like us.
00:21:46
Speaker
I think two, three things worked in our favor. One was me being a banker. Right. Overall, that helped people that I understood the space because I worked in that space and everything. everything So why me was answered over there.
00:22:01
Speaker
Second thing that gave confidence to people was that oh that I had already struggled. and so i had left London job in 2010 and i had already fought hard for three years before starting LK. So they knew that I was there for a reason and a purpose. right So it's not that I had London job and then I am taking their funding straight away. So that transition right of overall people had seen me, they'd asked me the numbers of my last business and everything and we had discussed those numbers and they realized that he's done a reasonably good job over there also that was there.
00:22:34
Speaker
I think and ah thirdly ah overall the segment and the way we were approaching it that also made a lot of sense to people that we are going to use technology data and data. the Everybody now says data, but at that time technology and data was not there.
00:22:52
Speaker
and i think what was also happening that our vcs were also from the similar community of so one of the vcs was the investment banker earlier other was a again a banker bank with a large bank as a large institution before starting this funds and everything so they knew the space and they knew that opex heavy hota they knew okay problems and challenges that all helped but us time to uh uh actually yeah i would suggest that my seed round happened without presentation I didn't have anything. I just met the people and they were convinced.
00:23:25
Speaker
Series A to literally I had just closed seed in june January 26th. Overall, I closed the seed round of four and a half crores.
00:23:37
Speaker
Right. Overall, that was also a large sum for us. Yes. And um I had conversed with and obviously my brother had few contacts, right? So I had reached out to them, made work with them. So I had those conversations.
00:23:50
Speaker
And this round got signed on, I think, second or third of. So we had one VC who came to our office. They met us for two hours. We went for a Gujati Thali and came back and everything. And by that time...
00:24:04
Speaker
They were, I was walking them down from the office. They said, send us the terms that you want to raise money at, right? Overall. So, and it was five days, six days. We are already reveling in our four and a half crore seed round. I was happy about that. And I thought this will take time six months or a year. It is not.
00:24:23
Speaker
They are saying, wait, next day they again called me that you not send us the terms that you want money at. So I had imagined someday that I'll raise 10 million, right? Overall. So man I said, send me. said, what's going on? So I signed.
00:24:41
Speaker
So that's how it worked, right? So in fact, Series B, when came in Bertelsman, that was the actual time where prepared a PPT. I actually went out, met other investors also, and this and that. So that was the first time in 2016 when we processed it. And that was a 20 million round.
00:25:03
Speaker
Yeah, yeah. 32 million round. withoutdo ba Okay. Okay. Okay. Amazing. So, ah okay. I guess for, uh, like for your business, ah capital is just one of the raw materials you need.
00:25:17
Speaker
Yes. because you are in the business of lending out money. so yeah So this money that you raise in the main company, so that money then you transfer to the subsidiary and then the subsidiary lends it out.
00:25:31
Speaker
And also, ah it this money that you raise helps you raise more money ah through debt. I think well one is to four ratio is considered as an ideal ratio. so but If you raise $10 million, dollars so it means that You can lend out $40 million. I've taken up now 30 million markets say otaque from banks and BFCs, whoever, and you can lend out $40 million. Okay.
00:25:58
Speaker
Okay. Got it. Got it. Okay. ah ah So, you know, how did, once you got the NBFC license, then what was your, ah go-to-market strategy?
00:26:10
Speaker
Like, you know, how did you... Because now you want a digital flow, you want to give loans in hours, and, you know, you want full transparency. So how did you go about getting the the loan, the people who need the loan to come to you?
00:26:28
Speaker
Yeah, so basically, Akshay,
00:26:34
Speaker
A critical piece is collecting data from the customer to underwrite him. So whatever we had to do, the first base for us had to be sufficient data to be able to evaluate him.
00:26:51
Speaker
Digitally, non-digitally, how can we get it? Our first question was to get data. We are digitally digitally, if we have data available or not, then it doesn't make sense. So the first thought was, okay at perlet the first 500 or customers, we would go out, meet him personally, take all everything, bank statements, financial statements and everything from him and start building the notes for him and then evaluate him and then give him money.
00:27:16
Speaker
But then we started figuring out slowly through data care financial statements, because it is a 31st March as on date balance sheet. If someone has a 1 crore sales, it will be $40,000,000, $70,000, and profit will be $10,000. when they got a of the sales <unk> forti lascarriciava log so antile cupva loga profit this is ah like It's not jump. can person just 1 crore and 10,000 profit show?
00:27:37
Speaker
so ede with de za prophet butna and does it right but said what The that
00:27:54
Speaker
The financial statements did not make sense. P&L only made sense to the expense of understanding how his revenues and expenses were because profits were adjusted, right? A lot of them smaller businesses would adjust. This was all done by CA because CA advice would be, as much would be. Because finally, this is an entrepreneur who is funding his own business, right?
00:28:16
Speaker
His equity is his own business. So if he pays 40-50% of tax. Every rupee of tax he saves is one more rupee for him. For him exactly and he doesn't have an equity source right so if he gives 40% of every year what he earns then how what is he going to invest because he has his personal expense also and everything else he has to do that.
00:28:32
Speaker
So which was finally finally we started realizing that bank statement or his transactions in bank statements for last 12 months were a critical source for us to understand how much business is doing what is he doing and everything.
00:28:44
Speaker
And like yeah ah if he is in FMCG space, the typical margins would be 8 to 12%. So if he is doing 1 crore in FMCG space, you should unless and until he is a below power entrepreneur, he will normally earn between 8 to 12 lakhs.
00:29:01
Speaker
rupees overall right i was the p and l might show 10 000 but the truth would be 8 to 12 lakhs and he will adjust expenses and everything everything so that's where based on that and if uh if he is doing some one crore may eight lakh rupees per month sales uh what can he increase it to can it take it to 10 lakhs 12 lakhs those kind of stuff how much money does he need for eight lakhs right for rotation because can he sell the goods in one month two months all that data all that we started preparing and that's where so banking data came out as a final uh go to things right banking data then it will happen. Now we have to realize that the banking statement is easy to make an application form simple and make an application form.
00:29:41
Speaker
But at that time in 2014-2015-2016 the pain was that the bank statements are not given in PDF. Basically you had a passbook right. So if PDF is not available how does he upload to our platform then have to scan the passbook but scanning the passbook again was a problem that because I wanted to build an automated underwriting system so how would a scan passbook mean my character recognition will not be able to know, reg ex will not be able to know so we started to solve many complications. i'm solveva karne ruka the In fact, account aggregator regulation 2017 October, man I was literally floored if banking data becomes open banking and it is readily available to everyone, then so this industry is going to transform massively. The only problem was that till 21 wave two, it was literally dead.
00:30:25
Speaker
Nobody was building it. We had as ourselves applied for a license. We had taken a license, but need it. Now, banking data is easily accessible and you can share it. but right it to us Almost industry 8 years right to reach to a level but we had foreseen that it will come and all those things will happen. the water but Initially, I had the plan that the whole process of originating will automate and digitize. The application form quickly fills the form, the details can be filled, the bank statement will be uploaded. After that, we started to evaluate underwriting the process.
00:30:58
Speaker
what isation process bana aapura process disill then we started underwriting process quopuraapurra automat kar alpuri even getting you woni and finally we amni collectionsqua ofmit kanasu ge peekka buying a guess ya like a nine are niceque self your haranda groanddatin in late datata hey ya my le sadinu barta toco maherran garrubia butra manesvaira dega you don't need to disturb him right that's fine So that's it and everything. So these three things got automated and i think mostly before covid we were ready with everything.
00:31:30
Speaker
So that also became our core thesis that now we can give to anybody anywhere in the country. So we've given up 20,000 crore till now to almost 3 lakh plus customers and we've done loans in like 4500 plus towns and cities. to many from Jammu Kashmir, Kanyakumari, Jamnagar and been given to the loan and 99.99% plus of our customers we have never met them.
00:31:56
Speaker
The money goes online and comes back online. we'll get So that also became our thesis that this capability of distribution origination underwriting in a digital space we have already built This capability can be utilized by a lot of other institutions and that became our together. loomico lendinga platform ban atha uskahisis thank carea Not necessarily everybody would want to invest in this customer.
00:32:21
Speaker
Our typical customer was like 23 to 45 in age, 90% of our customers. ninety percent of ah ah mar average age 33 34 middle aged guy having young children teenage children 90 plus and plus of our customers were graduates like b.a. b.com bsc but then running a kirana store metai store or a apparel store or a mobile phone store or a trading company or a servicing company or a manufacturing company which was je a i his average daily balance uh akshay would be typically around thousand dollars
00:32:52
Speaker
He was also in his account in his 70-80 years. He was a very downtrodden hand-to-mouth. In the proper proper business, our uncle, father, father and mother, who all do the same thing, he was a guy. Sibyl's score was also decent. He had taken a some consumer loan. Now, we have off-lately consumer loan credit. lia guy a two wheel three wheel leo Business loan, a lot of times, we were the first person to trust him on his business and give him money and stuff like that.
00:33:16
Speaker
Earlier, we also used to try and do non-GST registered. Now, are totally focused on GST registered and all those things. So, those kind of questions. He was not typically a banda who was not having a social profile or a data or who would...
00:33:31
Speaker
who you could just discount and say, give money. It's like family or community, euro score, loan, given, business run, that and all of us have fear of God as well. right So that was the customer.
00:33:44
Speaker
We believed that this customer typically right would pay back unless and until it is some business calamity. If you don't have to buy it, it won't It won't be in the house. Your sales came away. You cannot do anything. right And these are like people. Better and better butter people.
00:34:07
Speaker
So that was it. So that became the core. And then we started automating the entire API integration with largest of the banks and institutions for our together platform. So that was the thesis behind Sorry, building the entire tech process systems and everything.
00:34:26
Speaker
When did you ah launch Co-Lending, this together platform? Yeah, we started discussing it in 1890, Akshay. So, until 20, people would say, before COVID, we hired Chief Digital Officer. He will make it all.
00:34:42
Speaker
somenaga nogan is a good cause of cardania We will reach the customer directly. Then wave 1 came. So wave 1 was still okay and we were getting interested in wave 2. So we were doing of our business as coal ending september october october thirty thirty five november forty five december it went to sixty five percent of our business that people wanted our business as school ending.
00:35:13
Speaker
March 22, 80% of my business was going as school ending and I was not able to satisfy banks and institutions who wanted more business from me. So what was happening actually was that this customer who was in smaller towns and cities, right?
00:35:26
Speaker
He's a ripe customer sooner or later for a home loan or an auto loan. for a credit card, for a travel loan, for selling insurance products for his parents, for investment products and everything. So this customer, if you get him through a loan, he could you could sell him so many things, right?
00:35:43
Speaker
If the customer has already sold your current account or salary account, the people already have all the money, whatever they do. Now, I could get you that customer in co-lending, right, overall, and then you could go and sell everything to him.
00:35:59
Speaker
well That became the mantra. or Micro or small businesses everybody wants to do. Only thing is people don't understand two aspects of it. One is how to underwrite those guys. Because it's a cyclical business. If COVID comes, he cannot do anything. right Similarly, right now also a lot of stuff he might buy and sell. So that's the pain of underwriting.
00:36:21
Speaker
The other pain is OPEC. OPEC is a very very heavy challenge in servicing smaller loans and micro and small businesses, right? So what happens in consumer loans that you can automate it on the basis of salary slip. You go ahead and underwrite the customer and solve for it.
00:36:38
Speaker
But in micro and small businesses, my it's like separate business, separate industry, separate OPEX, separate stock period, credit period, margins, hand, and then you have to understand everything.
00:36:49
Speaker
Right? And how is it doing and what is it doing and stuff like that.
00:36:54
Speaker
Okay. so OPEX means ah the readingdding elections work? Operating expenses. Does it refer to the collections part of it? Yeah, also the underwriting part of it.
00:37:08
Speaker
For us, operating expenses would be typically... operating expenses would be technology, data science, AWS, collections, sales, DSE, online costs. And the customer end also has the costs to run operations. So the idea was that, like DSE cost, it would be similar for me and the bank.
00:37:26
Speaker
ah customer and pay operations your run car ni village har karel like the idea was that yeah just a ds acoa it would be similar for me in the back Same DSA would give me a file line for them. that will not be differentiated. Similarly, the bank market will be optimized collections, but I won't optimize it because it's a small scale.
00:37:45
Speaker
But is there a way that through technology, right? Can I optimize that? Can I reduce that? Right? Because finally, all of that falls on the customer and your margins. The more able you are able to optimize and build better systems and better processes, your customer will benefit and you will benefit.
00:38:02
Speaker
And the journey of the customer becomes so much smoother. Right? Today, just think of it that if you take car loan and you almost get every other day a phone call from somebody else, that will be more irritating rather than going to an app and just checking where is in my process. Right? but go alone then like it does been like yeah everything like So that's how it works. Okay.
00:38:22
Speaker
You said three things which you built one by one. Origination, then underwriting, and then collections. oh From what I understood, origination was mostly about the KYC, the data collection of the customer. What about the sales? like Is that a challenge? or Origination is distribution, origination is sales and everything included in that.
00:38:47
Speaker
So if you ask me, in three, origination was the most complex thing. hey So in the sense, if somebody is sitting in Guwahati, in Assam. 1. does he know your name to reach to him?
00:39:01
Speaker
2. he trust you that he will trust you and loan? 3. Does he have next level trust owner to give his critical documents? KYC, bank statement details and then want a loan sanction from you and everything? 4.
00:39:14
Speaker
and fourthly with go in gohati can you make it a seamless process or ah journey for him so that sitting in his house he can apply online get give you documents you can evaluate him and serve him as well not only at the time of picking up the loan but after the loan because see again the Very large difference in financial services is right if you look at Blinkit it's a 10 minute delivery transaction done if you look at Zomato Swiggy it's an hours delivery or half an hours delivery transactions done if you basically have amazon flip card it's 24 hours 36 hours netflix servicing immediately i was streaming over service over it's an hours journey again max right
00:40:02
Speaker
Financial services, may the transaction starts on day zero when he takes a loan and the last transaction happens when his last TMI is paid. It's a hand holding across much larger duration and longer duration. And traditionally, this has been done by people, right? All across.
00:40:19
Speaker
i mean And lending is like a thousand, two thousand, three thousand, whatever we can think of years old business, right? Bartering and everything is was some form of lending only to someone, right?
00:40:31
Speaker
To automate to the level that he feels confident during the entire journey was the most difficult part of that, right? Even if you have a channel partner or a DSA or even if you do performance marketing, even if you do branding, even if you run ads and everything, everything, everything had to be targeted to building that trust and respect with the customer for us to get him on boarded with us and do the entire journey.
00:41:00
Speaker
What are, like, you know, can you make some sort of a framework or some bullet points on how the trust is built with a customer for financial service businesses? yeah Like, is it about financial services marketing or celebrity endorsement or like, you know, what are, how is it built?
00:41:19
Speaker
Yeah, that's all the things are very peripheral, right? I tell you that our day zero is the mantra that the customer is the CEO of the company.
00:41:30
Speaker
He can fire everyone in the company. Right. we don't realize that. We've always, always focused on one single thing is customer. but who biage deaf i sayritanjaratawa marka nija yeah be always always focused on one single thing is customer madamap kivo tira the chicura was conara process meduk deo u scallaak could you be in a he here If you focus on the customer, his journey, his needs.
00:41:59
Speaker
The customer is also not coming to you for a product. He is coming to you for a solution to a problem. that he has. Right. If his problem is getting money in five days, that's his problem. If you give him money in month, then it is not solving his problem.
00:42:14
Speaker
If his ah problem is getting money without getting the social stigma of asking from friends and family, That is what is coming to solve with you. Right. Can you do that? Thirdly, if his problem statement is that he cannot leave shut down his shop and go to a branch or a branch manager or a CA prepare his file and submit his file.
00:42:34
Speaker
That is what his problem is. So that is what you need to solve is can he at his home in evening or night after food, sit, apply, submit documents and then every evening or night if he's not completed it, check it and recheck it and not go anywhere.
00:42:48
Speaker
So, the is that you need to know what you need to and what you need to do and then you keep on solving it. And see, we normally understand that small and micro businesses are going to be simple.
00:43:01
Speaker
Everybody is very sharp. Everybody is very smart. And I told you the population, right? I told you the population, this is the educated population. And these are the kind of people of, we had the luxury and privilege of coming to larger towns and being exposed to a lot more things.
00:43:14
Speaker
They might not be, but they are It's he's a graduate, right? if he's a He's taken loans before and he's running a business, right? And running a small business is like running your own ship. It's not easy. Everybody is doing that and everybody is working for that.
00:43:30
Speaker
So the entire mantra, entire time Akshay has been focused on the country. Right? So what you're saying is that if you, if you solve.
00:43:42
Speaker
consumer problems with an obsession, ah trust building happens automatically. Like consumers are able to see how ah convenient it is to use the app, ah how ah there is transparency, things are predictable, that automatically, and maybe word of mouth also. I don't know. but In my 10 years journey, I don't know if that if there is any other solution to this problem. I don't know. I haven't had, I personally don't know if there are any other frameworks of building trust with the customer.
00:44:12
Speaker
ah Can you also show me this through numbers? What is the, ah so out of every hundred customers who are coming to the platform, how many come from what source? What is like, yeah I'll tell you, right? I'll give you some numbers.
00:44:26
Speaker
So first year of our lending, we almost 13, 14, we did some nine crores. First year we did some 1 crore then 9 crore then 110 crore then then 350 360 then 800 then 1700 then then 1200 then 4000 then 24 we did some 5600 crore so going from one to 5600 crore right is like whatever percentage you want to apply to that you can do that overall right but that doesn't happen
00:45:06
Speaker
Unless and until you're understanding the customer, right? Even though it's a full product for people, people want money and everything, everything. But the important piece was people have to pay back as well, right?
00:45:19
Speaker
And if they, in today's times with bureau and everything, if you don't pay back, it scars you, right? These are all middle class understanding people who understand that if I screw up this loan, in future an education loan for my family could be denied and insurance will might be might become more costly or I might not be able to buy a house in future or I might not be able to travel abroad.
00:45:41
Speaker
Whatever can happen, right? If you have court proceedings against you, you you don't want that. The stigma still stays. You don't want police coming to your home, right? During the middle of the day and calling out things because your neighbors out there, people looking up for you and everything, everything, right?
00:45:55
Speaker
So these are all the numbers are if you had solved for customer then and how it works. So um numbers so ah what is the, like say, what percentage percentage of your customers come from DSA? What percentage come from digital marketing? and started it out Early days, it was a lot from DSA 50, 60% would come from DSA 20% would come from organic marketing on marketing and everything and 30, 40% would come from partners and everything.
00:46:25
Speaker
Partner means what? Channel partners, these would be online partners like Paisa Bazaar and other partners, right? smaller partners would source online proposals for us, call centers and everything, everything. They would be that.
00:46:38
Speaker
but These are also like DSAs only, know in a way. They are like digital DSAs. We basically would club it as an online and offline partnerships for us.
00:46:48
Speaker
70-80% of our business seventy percent of our but businesses would come from online partnerships. DSA would be typical offline, feet on street, feet on ground people. so weep We might not have it, but others are having it.
00:46:59
Speaker
thirty percent And DSA just for people who are not from banking space, like people in banking space know what is DSA. Direct sales agent basically. Direct sales agent. Basically these are commission agents who earn a commission for sourcing customers.
00:47:14
Speaker
And they they get paid. Will be local people who know the entrepreneur, who understand financial services, they can collect the documents, help the entrepreneur. So they would be typically doing the job that I was doing in my last,
00:47:28
Speaker
um Yeah. or Right. yeah And they get paid ah by you, ah right? not Not by the customer, right? No, no, no, no, no. so b Because we are using their services. Once the loan disbursement happens, we pay them for providing that service to us or bringing that customer to us.
00:47:44
Speaker
Correct. And they pay, they are paid only on success or even when somebody is applying? Only on success. Only on un success actually. That's how the industry has been formed that they get paid only on success. So he would typically continue to bring in proposals for us out of 10 proposals. If three gets sanctioned or dispersed and everything, then he gets paid on three only. Okay. ti Got it. Okay.
00:48:05
Speaker
Okay. So, so yeah, coming back. So you said in the early days, 70% was DSA. What is it today? It's around 30, 35% right now. Okay. And the remaining 70% is what like? 70% is my own online marketing, branding, PR and a lot of people coming to us directly also organic also right now.
00:48:27
Speaker
Okay. Okay. Okay. Amazing. Okay. Okay, understood. So ah what how does the economics of this business look like? like how much do you So there is obviously a customer acquisition cost. It could either be a commission to a DSA or it could be performance marketing spend, whatever.
00:48:44
Speaker
And then you earn through the interest which the customer is paying. And you that yeah there is a cost of the money. There is an interest you are paying out. So there is some margin from which you are reducing these expenses. There is a operational overhead you are reducing. So how does that look like? like you know Can you just take me through the business model here, the economics?
00:49:04
Speaker
Yeah, typically, we would normally charge customer from 16, 18% to 36%, 30 plus percent or 36%, depending on his data and everything.
00:49:15
Speaker
Our cost of funds normally ranges between 12 to 13% overall. Our origination cost would be around 2%. Overall, my delivery cost of AWS and everything, or Although software will be 1% around 1, 1.5 collection costs will be 1, 1.5. Right. So this would be around 3.5 to 4% would be this overall.
00:49:36
Speaker
Typically, we budget for around 4 rupees of cost of credit in this industry. Right. that Cost of credit is like the NPA. That will not come back.
00:49:48
Speaker
Right. So you can tell the cost of default or money will not come back. That is for this four and four would be typically eight, right? or And then DNA of technology and everything on top of that would be another two or three percent.
00:50:03
Speaker
So we would be typically left with around 2 3% net. We would try to earn around 3% net in this business. 3, 3.5% net which sounds reasonable in this business.
00:50:16
Speaker
So that's how the unit economics work. Early days when all of us were building technology our G&A would be very high. Because we were having hiring tech people this and that and everything. So we would not earn money.
00:50:27
Speaker
But typically everyone in this business would try to earn a net of around 3 to 4%. And then if you're able to lever this four or five times, right? And with platform, we were able to lever a little bit more also.
00:50:38
Speaker
You could normally earn an ROE of 15% plus in this business. This 5,600 crore disbursed last year. How much of that was your own books, your own NBFC? How much was through the platform?
00:50:50
Speaker
So we ended 24 Akshay at almost 7,500 crore of who you Wow. And out of that 2000 crore was our own books and 5,500 crore was a cool ending.
00:51:06
Speaker
Okay. Cool ending or DA securitization and everything. Okay. Okay. Okay.
00:51:14
Speaker
okay I want to now ask a bit more about how co-lending works. um In case of co-lending, do you have skin in the game? Like there is this first loss default guarantee arrangement.
00:51:28
Speaker
yeah so So you have that, like where you, if there is a bad debt, like somebody doesn't pay up, then you share that loss. ah So you have that kind of ah call a arrangement. Yeah, obviously.
00:51:40
Speaker
See, again, what happens is, that every institution was partnering with capital with us right they want the customer they want the business and the loan and everything but they also want some surety because we are the people who are feet on street or feet on ground for them right we are the ones who are originating the customer this may be no uh alexa models actually actually One model was that I gave you leads was that I had underwriting leads but then you will decide what you will do.
00:52:13
Speaker
The other model was that gave a loan and then you will do collections. But across the journey in early days, my thought was that if I don't manage customer experience end to end,
00:52:26
Speaker
right And if I give it to a third party and if he goes through the pains again, which he's been going through, I will lose my credibility overall. So when we started out in 2021, 2022, majorly in co-lending, my clear answer to all co-lenders was that the journey of the customer, the experience of the customer will have to stay with me.
00:52:47
Speaker
you will be a capital partner you can loan agreements but customer al kijo experience journey puripuri that will still be owned by me till the last day of the loan so for us we were very clear that we will you can we can participate 80 20 90 10 100 0 75 25 in of capital we are happy to provide that we will give you fldgs and everything but the customer experience is what we are are going to manage now there are variations that have come due to regulations also so uh now kyc is one important piece because what was happening is a lot of large institutions were discounting that fact to wo yeah
00:53:26
Speaker
Now even few of the institutions have been... Can you just explain what you mean by that? Like KYC, what has changed now? What was happening earlier? KYC was the idea that we used to do KYC for the customer and then share it with the co-lenders. Now regulation has come that our RBI has suggested that the large institution, they themselves should do this KYC.
00:53:47
Speaker
Because finally, the customer is coming on their books and is becoming their customer. So that is there. Few of the institutions are now also picking up the cudgel of collections overall, right? For the customer that we already have infrastructure, we already have set up.
00:54:00
Speaker
So if we start collecting it, rather than paying LK for it, we can benefit much better. and It works for LK as well, right? Because if they do that, my risk is comparatively reduced, right? Because beyond a limit, then if you are collecting your money after your credit checks, then I don't need to give you an FLDG.
00:54:15
Speaker
Those models are now emerging, Akshay. Okay, okay, okay. What is the split in your books of where you are doing collections and where the the largest spend is almost with us actually, this is a new development that has happened in last three, six months only.
00:54:34
Speaker
Okay. Okay. Okay. I think the regulation is now that, uh, you have to underwrite if, if the money is coming from you, but like if you are lending to a. That always happened in even 80, 20, 100, zero, we would underwrite the case.
00:54:50
Speaker
We would send it to a colander. Then his underwriting team will obviously look at it. and then they would approve the case. Normally, people think that we did it and everything happened. It's not so easy. First, both the teams would sit together for 3-6 months, identify the common commonalities of what kind of businesses it would want, policy would be set, everything would be set.
00:55:10
Speaker
Then, algo's would be trained accordingly and then the outcomes would be there. But still, every case Because underwriting cannot be outsourced by these institutions, every case has to go through that process and we still have rejections. right So once that is rejected, so amari you what they give once a customer comes, he might be eligible for three colenders, might be for two, might be for one or might be for zero.
00:55:32
Speaker
If it's for zero, it is disbursed by us because we and have underwritten it and we are confident about it. If it is by three, then i assume that it goes to one of the colanders if it doesn't work out, right, based on best interest rate and everything and then he goes to the next colander.
00:55:45
Speaker
So this was the actual and this was all done by Algo's, Akshay, right. Algo's only do it and so this was the platform together that we had created for all the institutions to use.
00:55:57
Speaker
If you are a colander with me, you'll always be worried, right, that LK might keep the best cases and what are they giving to me overall, right. Or is LK working better for few other institutions than me? And everything think that's it was all driven by LK. And all of these institutions would verify those facts and check those facts and then only lend money.
00:56:13
Speaker
Okay. Fascinating. ah So you would open up your algos to them so that they can audit? Yeah. Okay. Okay. Fascinating. up the ah ah So you said that if someone is i eligible for three co-lenders, it goes one, then second, if the first one doesn't approve.
00:56:31
Speaker
ah So if the first one doesn't approve, does that hit your civil score? because I believe there is some impact, right? If you apply for a... loan and that is an in-house thing that we would do uh action it's not reported to civil the civil would be hit by us only and then we would only share the civil score uh for for those institutions and for those uh person with those institutions based on that they would evaluate it and they would go ahead and do that yeah got it got it okay uh You want to give a loan in hours, probably now it'll probably be like single hour, not even hours. ah
00:57:08
Speaker
How do you ensure that with a co-lending arrangement where you underwrite and then the bank also has to underwrite? And, you know, it sounds like, I mean, it doesn't sound like it'll happen that fast.
00:57:21
Speaker
No, no, Akshay, we've actually done a loan in 20 minutes. We've actually done a loan in six minutes also. And we've done a loan in hours. In last we've done tons and tons of loans and we daily do that.
00:57:33
Speaker
See, again, it's about one, like I said, right? every You have to think of the customer. But here, the the bank is also a a decision maker. So, you know, it's out of your control how long it takes. I'm just asking from a a macro perspective. That SA has to set up, Akshay, right?
00:57:51
Speaker
That it's normally a tata of like you give them 12 or 24 hours. If within that decision doesn't come from them, then it moves to the next pool end up. Right? Because again, as I told you, it is the customer.
00:58:02
Speaker
If you don't serve him when he needs it, it won't matter whether you took three days, four days or five days for co-ledding. So this all API integrations, all discussions, SLAs have to be pre-hand Akshay for serving the customer because both of us who do lose the customer, right? And it's our loss is somebody else's gain because we both did the entire effort of bringing him on board, bringing him, getting his documents and everything. And if he's eligible,
00:58:28
Speaker
and we are not able to serve It's simple, it's like a restaurant. If a customer comes and you don't give to your food, he's hungry and he's hungry and he's hungry and he's hungry and he'll somewhere else. If you do it, he'll never get away from you.
00:58:41
Speaker
Right, right, right. Do banks also do algorithmic decisions? yeah Is there still a team? Yes, yes. No, no, all of them. So basically, a bittoallo I think banks have also started this for smaller loans and everything because they also realized that it's much more standardized, it's much more automated, it's much more cost efficient, and it's much more outcome driven, right?
00:59:02
Speaker
The beautiful part about Algo's is that if you have to make a 1% default loan portfolio, you can make that. If you have to make a hand, origination cost and opex. On the other hand, default cost and this.
00:59:18
Speaker
If you default 1% then you will get to the top this. Because you will get 1% in or depending on what you want everything you want.
00:59:34
Speaker
So from our pool some bank would pick up 30% of it, some bank would pick up 50% of it. We've never had somebody would approve everything in LK. right which so matter One of the largest banks, private banks in the country are only 1% approval from our portfolio. okay umo We had to tell a go and tell them that somebody is in business, they are doing this for 10 years.
00:59:55
Speaker
You have to trust us. You will be so complex and that is the reason that they are not coming to this complex. If you want everything, if you want everything, then how do you see it? You will be a small customer.
01:00:07
Speaker
That's how have gone through that journey. ah have you uh so like you discovered firsthand that uh balance sheet and pnl ki value uh cash flows is what you have to look at have you convinced the banks also that a balance sheet and pnl ki value in a year yeah it took a lot of time it took almost lending of five ten thousand crore and then telling them give us we are doing something Not necessarily everybody was convinced, but still people were convinced.
01:00:37
Speaker
And I think COVID just tipped the scale, right? COVID made everybody realize that people will not come to the branch in the future. It will be difficult to get people. And even people calling up people and going and meeting them and getting a file will not work. And that's that that's what tipped the scale for us, yeah.
01:00:55
Speaker
How does your underwriting algorithm decide what rate of interest will be offered? Like very abstract way that you can explain. Just like I told you about the yeah get If the default is 3% or margin
01:01:27
Speaker
It is algorithmic. All sets of numbers are very clear. right that said There is no anomaly and even our profit numbers are very clear. so this is um demand business actually but this is not a very high margin business um no so um a child but dan heja ah som a teenager childbe hundred i say a groupia kamia thirty three percent of a profit durupeca ma sixty six percent of a profit um inpe ah good yeah yeah
01:01:58
Speaker
my hundred percent of a profit gone there's nothing This is a super relatively thin margin business. You can think that you can build good business not an easy business and that's why a lot of people don't do it. right A lot of banks and institutions don't do it, a lot of people don't do it because it's a complex ah business.
01:02:25
Speaker
ah So which means that your underwriting is like the key for profitability. So have very strong underwriting. youke As you said, with a get the underwriting is there and collections infrastructure is there.
01:02:40
Speaker
But I think they are hygiene. You have to give good food and customer service.
01:02:48
Speaker
What differentiates us typically from and that HDFC access everybody can do. This this is nothing rocket science that I will build. I have built Algo's before. They will do it now, which is fine, right? That's okay.
01:03:01
Speaker
The important piece here and the differentiator for us is distribution. What we have got appreciated is that
01:03:09
Speaker
convince kto could document day sanctionary disbursement what we've got appreciated is that People would ask you this, this, this, this. It's hygiene. you make it bad, the restaurant doesn't have to go out.
01:03:22
Speaker
It won't come out. But if everything is good, you make it good, you make good, you make it good, you make it good, you make it good, you make it good, you make it good, you make it good. After getting the customer to you, right? Because if you don't have a corporate brand name behind you, if you don't have a branch network, if you've not been there for decades, then distribution plays a very, very strong role in your success, right?
01:03:42
Speaker
And for that, we spend tons and tons of hours, years, money, building that core, right? Because if HDFC gets so my collections and my underwriting, they can do the customer, right?
01:03:55
Speaker
Only thing is where do they get the customer from, right? That's the clear path. Okay. Okay. Interesting. ah I want to understand underwriting as an outsider.
01:04:08
Speaker
Is it that you create some groups of customers, like say, FMCG businesses, and then there is a interest rate which is calculated? Like if a FMCG, like if ah somebody's running a retail, FMCG retail a store comes to you for a loan, he will yeah get this rate of interest.
01:04:27
Speaker
And somebody from this area, like say, maybe there are some areas where default is more, so and some areas where default is less, or is it like education qualification that somebody who has a bachelor's degree will get a better rate of interest.
01:04:41
Speaker
Generally, people with bachelor's degree have a better repayment history. Like, like what are some, ah you know, insights? Every time I've gone to a VC, I've had to explain this. This is a good question, right?
01:04:55
Speaker
what happens this, a bull learner yeah ya and rule, it's rule, rule, it's rule, it's rule, it's rule, rule, rule, it's a rule, it's it's rule, it's a rule, it's rule, it's rule, it's rule, rule, it's a rule, it's a rule, it's rule, it's rule, it's rule, it's rule, it's it's rule, it's it's it's a rule, it's it's rule, it's rule, it's rule, but it's rule, it's a it's rule, it's rule, it's it's a it's a rule, it's it's rule, it's rule, it's it's rule, it's rule, rule, it's rule, it's rule, a rule, it's rule, it's it's a it's rule, it's a it's rule, it's rule, it's rule, it's a rule With ALGOS you don't do that. What happens in ALGOS is that you give ALGOS data. And ALGOS don't start answering your questions till they have sufficient enough data. What do you do with ALGOS? You give data in which form? In machine readable form. In bank statement, we normally have 5000 plus variables.
01:05:43
Speaker
normally have five thousand plus videos Meta variables this that coming out of bank statement. If you have a bank statement, it will be a weekly average balance. over obama account Minimum or Maximum.
01:05:56
Speaker
Bi-weekly or Monthly. There will be variations of your average balance in your 4th week. Salary account will go trends.
01:06:07
Speaker
man Every other month, quarter guruwa water study guruga in fact, 12 months of your bank statement, I will also know that which day of the month is the lowest bank account. but so right How much balance continuously, how much money can I take, how much EMI can I take, how much money can I take, how much money can I take.
01:06:27
Speaker
Based on the money, I would realize that. When stock comes, it will be a good thing.
01:06:33
Speaker
Similarly, financials, ka you we banking data, of social profile, and this is the one. Initially we started with rule-based system, then we started feeding algos the data.
01:06:44
Speaker
And then almost a thousand crores, our algos started answering yes and no. The first output of algos was yes and no, whether it should loan or not. Now, algos evaluate? I have 1000 crores, so 1000 crores would mean like customers.
01:07:02
Speaker
So what will happen if the new customer will come? The 20,000-paying customers will be able to get the characteristics of this person. Education, Owning of House, Bank Statement Data, Check Returns, all the matches will be able to get the yes or no.
01:07:19
Speaker
and there are threshold levels right dini or case score that you know that you know that and then slowly slowly when you started in the our data warehouses almost seven billion plus data points across pan india right now our algos have been trained for the fact that if a customer comes today
01:07:42
Speaker
manno lanakyanderui shoe manufacturer the butno leather industry shoe manufacturingr limited data point the ko are a leather manufacturer had manufacturing gi mcke size and scale our business entrepreneur yeah yeah hey yeahka philip up no hair like no lo asssika and that andda similar than the asgar all of that is seen by the a that on and alvo will give you ka chaeb bandda in data points database
01:08:14
Speaker
amount should be given as much, the risk profile should be given as the interest rate charge, and the interest rate amount and tenor typically we have 24-36 months. You can do it in the maximum.
01:08:27
Speaker
But this is all driven by algos and models. So early models used to be used for logistic regression, deep learning and all these models. ah deep learning or sp model channel left can have is over This is all algorithm and you can track the output of the outcome.
01:08:47
Speaker
See, it's a data loop. You have given the loan loan, but when the payment comes, the loan will be finished.
01:08:56
Speaker
It is complex but it will be reiterated. You can see that I had the loan 3 years before. What was my confidence in that time? That payment came. All of that is continuous process.
01:09:11
Speaker
It takes time, effort and lot of money to build that but once you've done that then you can continuously start improving that and everything. So that phase has been built in India in five years.
01:09:22
Speaker
We are still not there. None of us in financial services will still take time. But finally, can optimize everything. To a level where it reduces costs and optics for you and gives you positive and proper outcomes that you want.
01:09:38
Speaker
Abhi, what is the level of confidence you have on your algos?
01:09:47
Speaker
I think when we evaluated it, it was 97.5% accuracy. If Algo says that payment pay, then it will be 97.5% with all other things being stable. If the is bad or if it's COVID, nobody can do anything.
01:10:02
Speaker
But with all other things standardized, Algo's could predict 97.5% of the times correctly that it will be. correct yeah Okay, okay. And what is the target number you have in mind?
01:10:16
Speaker
Are you happy with 97.5? What is the number you want to know? I am CA. This is like science and mathematics, right? i I don't know, a bm now off literally we haven't got this done. But in this age of January and everything, what people are aiming for, because in financial services, I have 4% defaults. 0.3%, more in that, would typically mean 12%.
01:10:41
Speaker
If you see 4% is 30% or 3% like you do 3% then it is 12% even if my default rate is 3.9 or 4.1 it doesn't matter to me. even if my default rate is three point nine or four point one it doesn't matter If I have 4.25% or I don't have a difference. If I have 5-6% variation in the Algos, I don't have a difference.
01:10:57
Speaker
It will reduce my profits a little bit but that can happen. But now I think there are a lot of areas where you need 99.9% accuracy. Like medicine or anything else or manufacturing. If there is a 3% variation in manufacturing, then maybe there will be fit is yeah they are aiming for six sigma six six feet exactly it depends on industry for us what we strive for is that is that variation good enough for us to run right because see one the more six sigma you want the more complex it will get and finally last three four five percent to solve for is the biggest claim Till 89 is still perfect. 95 is still doable but 95 to 99 is where. ha Exactly. tax, team, a effort.
01:11:44
Speaker
specific like your team like a guy effort like What does it
01:11:52
Speaker
che like proppeca lu and du peamanana butjabia parao bevajaos go right it would be so bad but that is still okay for us okay ah so You have, ah give me some advice about fund raise, because you have raised a lot of money.
01:12:10
Speaker
i can see total debt plus equity is like north of $200 million dollars that you've raised till date. Yeah, equity has been raised for 150 plus. yeah What is your ah most recent valuation that if you're at liberty to share? the Valuation we are never allowed to share.
01:12:27
Speaker
my love maybe video we As an entrepreneur, I should not share that. as Before I was asked, I was like, I have a good idea. But people don't view it positively. upne but As an Indian tradition, you don't show the wealth.
01:12:41
Speaker
and Actually, it seems very bad to that I was doing something in a past take us takeway the stickgger take a piece stick as they go You still feel good, you've created something.
01:12:59
Speaker
And coming from a middle class, these will be large numbers. Very, very large numbers for all of us. But now you realize that nobody appreciates that. So, don't do that. And it doesn't come out regularly. So, I think you have seen that in 16, 17, 18 months, a lot of paper would be covered with that it has raised so much.
01:13:17
Speaker
In fact, in 21, literally everybody was like going bonkers. ga Billion, 2, 3 billion billion. It was like this. Unicorns were being caught that something was happening. So, they're all going out for that. But, okay. So, know, do that.
01:13:37
Speaker
So, for fundraising, Akshay, personally feel that one if you're starting early, you need to know why people would rely on you. As a founder, first principle put the thought of why people will give me money for making money.
01:13:56
Speaker
Is there a capability? Is there a past experience? and What do I bring to the table? but That is very very critical for you to understand. I want to know if you start in some industry where it's totally unlinked unless and until up.
01:14:08
Speaker
I mean, I was told that 14 years ago, Bansal's name was IIT, Stanford, Watton, you will get to get people who trust you. right You need to have something at your behind. Right.
01:14:19
Speaker
In later races, what I realized is that that. If you are riding the wave, right? and And the wave is in your favor when FinTech was the flavor and everything, you could go and easily raise the money.
01:14:31
Speaker
But if you're not riding the wave, it will test a lot of your conviction. of how and what you want to build in business. So your conviction will have to be clear and since what you are building in startup space normally hasn't been built, right it is your story that you have to go and convince them with.
01:14:50
Speaker
And because people haven't seen that built before or after, it will not be easy for you to convince them. and so like every time when i have gone out to raise money people have told me 25 about me chabizwa investor he passed alta right because you go and tell them you talk go and talk to 25 investors you keep on improving your story you keep on answering the questions for them and everything and i always I normally joke with the team as well that every fundraiser is an appraisal or exam.
01:15:21
Speaker
If you get money, you think that you have the If you get the getting the exam, then you have the exam not clear. Because VCs will ask relevant questions from their experience, right their perspective and they would have seen multiple businesses similar here and there.
01:15:36
Speaker
But you need to have your conviction and you need to stick to it as well. At least for that fundraise. During the fundraise you cannot break that. like fundraisise theing But your conviction is super important and trust
01:15:50
Speaker
but aki story afkaganvi is super important and rush Me guys, even for the largest of the investors with biggest of the companies right now that are listed and everything, every one of us has gone through a process where we've been drilled, where we've not had money and where people have told this won't work, that won't work.
01:16:10
Speaker
And then somebody relied on us, gave us money and we built it. I've heard stories from everyone, everyone, literally everyone like that. so if you like you've done seven eight rounds it ten rounds if you got like every time you got a went out in the market and got a check then you are like godly in this uh but typically i think 85 90 percent of people struggle like me and so norm here norm is not like going out and raising your collar and getting the check return at the first instance it's very difficult
01:16:45
Speaker
I would hardly call you as someone who's struggled because of the amount of money you've raised so far. So obviously you are reasonably good at it. yeah acorti hey One thing that I want to share with people is that, uh,
01:17:00
Speaker
that one getting being obviously convinced about your story is important, right? But how you tell the story is also very important, right? Finally, business is your conviction and your story behind it.
01:17:12
Speaker
So CEOs and entrepreneurs should prepare for and i am now realizing it in the last three, four years, my Vishis used to tell me that you have a good way of convincing. so Simple example is I've never created a PPD for myself. When I go and to investors, I just write on board, right? I just start writing on board, expressing emotions over there and what and everything I have prepared and everything.
01:17:35
Speaker
That should have a good memory such. So I don't forget numbers. I don't forget things if I hear them once or anything. even And even if I've read something once and if I want to remember it, I'll remember it, right?
01:17:46
Speaker
So that helps me. uh overall but like in my 10 years history never in my board meeting never in any meeting have i gone with the presentation ppt and presented with it to any investors i would have like 200 plus investors or thousands of presentations i would have done so that is there too the idea is that one your story and your conviction is important but how do you communicate that right and Guys, I think a lot of people feel in India. I have also come from my background where when I started college, right? My English speaking, my mom me is like, normally we middle class, but mom used to say, you should speak English at home, so that you guys get fluent, right? And we didn't realize the need for it, and why is mom right now doing it? And Hindi is going to be like that, right?
01:18:32
Speaker
I also come from that background where had a normal school, English was not spoken over there. I had never had English friends. Our conversation in English was only for one, two, three lines at max overall. But then when I went to London, when I went to my job and everything, I realized that's important. Even in job, you don't have that, right?
01:18:50
Speaker
London was obviously important because of it. But then when I started meeting people, interacting with people, you And I have done conversations in Hindi as well. it was The idea is to get your story to be communicated properly. If it's in English, one you communicate and second, the guy who's hearing it should also get it. right Typically, I feel that English is much better because it expresses lot.
01:19:12
Speaker
It can give passion. it can give passion But a lot less emotion. right In Hindi, you get emotion and multiple words can have multiple meanings and everything. right and Unless you say Hindi, you don't have to say anything. But storytelling is very, very important.
01:19:27
Speaker
Very important. I think one of the things that has helped me across my journey is to be one, having clarity on what I had to do. And I have had times where I had struggled with my board members, investors and everything, where I had to just go and tell them,
01:19:41
Speaker
This will happen, I will do this, I will not do this. That is also necessary. two But if you can't say your story well, you will not say well. Nobody then would believe you and would want to invest in you.
01:19:58
Speaker
Now, I can imagine how impressive it would be for a VC, when they see you without a presentation, writing on a board. was ah It is so clutter breaking, because some people are coming with presentation, whereas you are going writing on a board, that confidence that you see in it, it will be different. People have appreciated me.
01:20:19
Speaker
In meetings, Akshay, I have asked beforehand,
01:20:24
Speaker
I have requested my team keep the board there. And if there is a small board, I get pained and I tell people that your small board will be
The Art of Storytelling in Investments
01:20:35
Speaker
pained.
01:20:35
Speaker
I will not do it. and could
01:20:41
Speaker
People have told me that after a long, long time are seeing somebody who just rides on board and explains it to us. But see, I don't know, I feel connected to people as well. Because when you're writing, they watch, talk, listen. If go to PPT, you won't know what to do.
01:21:00
Speaker
And you have to figure out a way of telling your story in maximum effect. yeah yeahible go Decision or non-decision of investing is done in the first 5 minutes.
01:21:12
Speaker
One is FOMO or not. The other one will put it or not. And in 5 minutes, entrepreneur says how about, they know how confident they are in their own hands. In 40 minutes, they are processing their mind.
01:21:27
Speaker
Is there anything wrong going which we are missing out? Because the first instance is, first 5 minutes they decide what to do and then they justify the outcome in 40 minutes. At that time, if they hear a convincing argument or a convincing story, it helps them make it feel comfortable.
01:21:47
Speaker
And all my investors have been like After the first meeting and second meeting, they have committed and gone ahead and done it. And the meetings normally now I feel were procedural just to convince themselves ah more that is there anything wrong happening over there or not.
01:22:05
Speaker
Amazing. Amazing. Thank you so much for your time, Harsh. It was a real pleasure. Thank you, Akshay, I
Investor Pitching Pressures
01:22:23
Speaker
through this journey. So in and nobody would come out. So when there was jitteriness in the stress,
01:22:38
Speaker
You are going to pitch on the panel, you are going to pitch to investors and you are going to be flamboyant. We had social network kind of frames also coming up. When he goes to the bathroom and takes money, he has made a statement. He has made a statement. He has made a statement.
01:22:51
Speaker
And he is going to go the not VC but yes this got be has and you secret good but they give me a pass they they get by the man but you don act yeah how ageja get everybody other question you ski did nany or ninety navalu k laishha didhina you that. a girl's wedding.
01:23:17
Speaker
But the first thing I want to
Sharing Entrepreneurial Struggles
01:23:20
Speaker
do is do. We need entrepreneurs to come out with their struggles and share their struggles that other people get into it. They're all going through. We're not alone. We're small and small.
01:23:33
Speaker
That's the same thing. I would have similar butterflies in my stomach. I thought that it wouldn't happen to like 20 years old.
01:23:44
Speaker
Now I realize that this will be lifelong. In the I go. People don't share that truth, right? It might be truth with others as well.