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Aalesh Avlani is building a lending business with an anti-fintech approach | Credit Wise Capital
157 Plays10 months ago
Aalesh Avlani challenges conventional labels by branding his company as a lending firm rather than a fintech. He draws nuanced distinctions between the two, highlighting the emphasis on loan collection that sets Credit Wise Capital apart. In this episode, he shares his perspective on the challenges of digitizing loan collections in India and why he advocates for a focused approach, building fewer products but penetrating deeply into the market, rather than spreading resources thin.
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Read more about Credit Wise Capital:-
2.Fintech Lending: The Path to Creating Financial Inclusion in India
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Transcript
Introduction to Alish Avnani and CreditWise
00:00:00
Speaker
Hi, I'm Akshay, I'm Alish and I'm the co-founder of Credit Vice Capital.
00:00:16
Speaker
On the founder thesis podcast, we have featured a lot of lending fintechs. But what makes the story of CreditWise uni is that its founder, Aalesh Avnani, calls CreditWise a lending company rather than a fintech. He makes this distinction between a lending company and a fintech in terms of focus areas and says that a fintech's focus is on customer acquisition and dispersing loans, where a lender's focus must be on the connection of loans.
00:00:41
Speaker
The traditional maxim in the lending industry is that it's much easier to lend than it is to collect and that's the wisdom guiding Alish. Stay tuned for an insightful conversation about building a sustainable and profitable lending fintech business on this episode of the Founder Thesis Podcast.
The Journey to Building CreditWise
00:01:07
Speaker
Alish, can you give me an elevator pitch of credit wise?
00:01:11
Speaker
Sure actually, credit wise capital is an NVFC with a forced focus into two wheeler financing. We are trying to disrupt the two wheeler financing space by using technology as an enabler.
00:01:31
Speaker
And we are into two other major verticals. One of them is cross cell. And the other is technology where we have product advisor tech stack. And we provide it as a SAS in the BFSI space. So today, credit wise capital is an full stack lending solution with the NBFC on the holding company and a technology subsidy under that. OK, interesting.
00:02:01
Speaker
Building an NBFC is not an easy thing to do. And, you know, I found it interesting that you did not start by saying credit-wise is a fintech, but you said credit-wise is an NBFC. You also understand the value of being an NBFC. Just to help our listeners understand why is building an NBFC hard? What's the value of being an NBFC?
00:02:24
Speaker
NBFC is actually a business of collection. It's not the business of lending. And I think FinTech usually have the lending first approach, but NBFC is a collection first approach. Collection is usually an unsexy part.
00:02:40
Speaker
So if you have that mindset, NBFC is your business. And if you have the former aspect, if that's a thought process, then the FinTech is your part. And so I think each has their merits, but recently with a lot of tailwinds coming into the regulatory concern, obviously NBFC or a regulated entity has become like a darling, has become more favorable and each has the cycles.
00:03:08
Speaker
I would say to give an old tech business might be slightly easier than building a profitable lending business with a clear focus on collections.
Fundraising and Transition to CreditWise
00:03:21
Speaker
How old are you? I will be earning 30 in mid of this year. How did a 30-year-old build an NBFC? Give me a little bit of an origin story.
00:03:34
Speaker
Okay, so I am from Bombay, out and out studied here but I went from education to Boston, double major in computer science and finance, worked in private equity, stayed after college, I was fortunate to skip the whole investment banking phase.
00:03:54
Speaker
After that, I worked there for almost three years and realized the amount of money into alternate asset class in America and knew to trickle down to India at some stage or the other. And came to India in early 2017, knew I wanted to do something in the fintech space. Raised decent capital from family offices from all parts of the country. Wanted to do... How? In fact,
00:04:23
Speaker
In fact, I had my first commitment on my flight back from America and on LinkedIn itself. It was all LinkedIn cold outreach. What was your pitch there? What were you pitching to the investors, to the LPs? I would still say that probably those eight, nine months of fundraising as a 23-year-old was probably the hardest part, at least in my short journey.
00:04:52
Speaker
and it was more about because more than fintech startups were just about scratching the surface fintech was unheard but it sounded sexy a lot of family offices wanted to get into this aspect where they wanted to diversify the asset class where they also probably wanted to digitize some of the core businesses so it did make sense they all wanted to be involved so that was my pitch where usually it would be
00:05:17
Speaker
Then maybe these are certain opportunities. I shortlisted a few. These are some opportunities that are brewing in the space. I would love to help diversify your asset capital into this asset class. Add way more noise than I can even count. But it was all about finding that one, yes.
00:05:38
Speaker
One question more about the pitch. Were you pitching this as like an alternate investment fund? Was that whole structure around at that time? No. I kept it as an LLP structure. 2017, the whole EIF structure had not even been around. Even if it was around, there was a lot of more regulatory, a lot of more paperwork.
00:06:00
Speaker
So I kept it as a very lean NLP structure. And because my focus was to invest in companies in India and not abroad, so NLP was the way to at that time. Okay, understood. And how much did you raise total? Like what did you? So I raised the total about $6 million. How much in crores? That would be around at that time was around 40, 40 CR. And what kind of stage were you investing in?
00:06:30
Speaker
It was literally pre-seed A to series A stage. Actually it was 100k to 500k so something 75 lakh to 3 crores was my sweet spot.
00:06:43
Speaker
And this was all like fintech only, the focus was... Only fintech, that's all I knew, that's all I had studied, that's all I had worked, so I knew that rather than spreading yourself to a thin wanted to have one focus and I think that was something well appreciated by the family of itself was someone who knew what he wanted to do, someone who had a focus that did help, wouldn't lie and
00:07:06
Speaker
Yeah, and so I think that's how I had my first set of capital. I was fortunate that a couple of family offices infused large sizes, so rather than the ones here, I had kept the ones here at minimum. So three, four family offices infused decent capital and that gave me the breakthrough I needed for my first close and so on. Okay, interesting.
00:07:31
Speaker
Why aren't you still running that fund? Because the fintech space has just become hotter and hotter and you were an early mover there. You could today be running a 100 million dollar fund if you decided to continue that route. So what changed? Absolutely. In fact, I did have a very good run-in with the fund.
00:07:53
Speaker
I had almost six exits within the first 11 months enough to return the entire capital back to all the LPs within 40 months. How many investments did you do in the first year? We had a total of around 50 investments.
00:08:13
Speaker
And how did you get the exit so fast? Exits take time to mature, right? Yes. So to give you some, we were literally the first investor in companies like Bharatwe, home capital, liquor loans. So what happened was those businesses went through their cycles very quickly, were able to raise substantial capital where you are here.
00:08:42
Speaker
Yeah, Bharati was at one point of time the fastest unicorn, fastest to reach unicorn status in India. I'm wondering why you didn't hold on to the stake instead of diluting in subsequent rounds. From what I can understand, you must have sold your stake in subsequent rounds. So by series B, you must have exited most of these investments. Whereas
00:09:08
Speaker
Most VCs want to hold till IPO or till the series E kind of a stage because the multiples are much larger by that time.
Lending Strategies and Market Insights
00:09:21
Speaker
So why did you decide to wait? No, you're spot on. But see, ultimately, we were more of a founder-focused, not even a founder-focused LNP that we had set up. I knew very well when my
00:09:38
Speaker
my skillset helped the founder go from 0 to 100 but from 100 to 1000 was the right institutional investment that came in and that's the help that will come in. By just sticking around on a cap table to optimize your gains, yes that is obviously a value add but at some stage I had made up my mind that
00:09:58
Speaker
The true calling was lending. So just to fight and stick around was not something that I always wanted to do. And in fact, very clear that this fund, because most of the LPs were first-time investors in this private space, and they come with a mindset where exit or liquidity is
00:10:21
Speaker
the actual MOIC is not as a lucrative value DPI. So what are these terms? MOIC basically is more like the value or the multiple on paper and DPI is your actual return. What are the full forms? It's basically your multiple on your invested capital.
00:10:49
Speaker
MOIC, multiple of the invested capital. So usually you calculate it. So every fund that usually comes to raise capital, say that my previous fund I had an MOIC of 4x or 5x, but your DPI was. And what is the full form? So DPI is basically how much capital on your return, where have you returned back?
00:11:12
Speaker
So irrespective of the money raised, it's how much money you have returned back or invested in money returned back.
00:11:19
Speaker
the capital return back always drove me more than the multiple on paper. So I always wanted to ensure that these investors did get the capital back and the quicker the exit, the better, and that time it was still so nascent, this whole space. That fear of your first venture not being successful could also override my thinking at that time. That did cloud my thinking.
00:11:45
Speaker
Let's not be greedy, Alish. This is something you've been fortunate to get an exit, give the return. You will be supremely thankful that this is it and did play out because most of the LPs wanted to back me in my next venture. And maybe, yes, I could have returned them with the higher capital. Maybe I could have not even given them any exit after seven years.
00:12:07
Speaker
My thinking was only because my first venture is and focus more on capital return rather than just people valuations. Interesting. Tell me that journey. By when did you deploy all the capital that you had raised? Thought process actually in probably in a span of 12 to 16 months, the capital was deployed.
00:12:38
Speaker
Okay. So it didn't take long to deploy. And in fact, what happened was we did not even end up deploying the whole amount. What had happened that we ended up deploying only 60% of the raised capital. So it didn't even bother with the third branch of call for money.
00:12:59
Speaker
Okay. Essentially, by that time, you decided to that you don't want to be an early city. It's not about I decided. That's not what I wanted to be, obviously. Because that's to be doing injustice to the LPs in the fund that you know, so it was never, I'd never made up my mind. That's what I want to do. It was just that good exits had come. You have already returned the capital. Do you want to continue doing this?
00:13:29
Speaker
is the question and the LPs are more than happy when you tell someone that your third call for money will not be needed. In fact, I'll be returning the capital and I think that was well appreciated. And I think it was also because of the LPs that were
00:13:48
Speaker
the kind of LP that were in this fund with me because they were all family offices and they were not institution. Maybe an institution was there. My thought process could have been different. But because we're all family office, all prop capital of their families, it just wanted to be pretty safe.
00:14:07
Speaker
Okay. Okay. So you saw that lending was how every FinTech ended up monetizing, be it bookkeeping software or be it like credit, which is supposed to be credit card repayment or like payment companies like PTM. All of them are monetizing through lending. So what was your thesis?
00:14:31
Speaker
I think very clear that lending was the true calling and then lending was a space that was going to grow in India, credit penetration was going to increase 10 points. In fact, being someone who when I was in America, I did get my iPhone on credit and there was one with my service provider back then and
00:14:58
Speaker
At that time, when you're college, you're working, you don't end up doing the IRR, but towards my later stage, when I was just about moving from America to India, I realized for someone like myself, who understood the space, was ultimately paying a 50% IRR on my iPhone in America.
00:15:17
Speaker
And that gave me a sense on what could potentially be the scope in small-ticket space in India. And I knew that technology was there to discuss. That was my strength, where could you mix technology to improve certain processes in how small-ticket loans were happening?
00:15:42
Speaker
and but because of my maybe you could say thought process day one wanted to be the secured space did not want to get into an unsecured space that was just how my deity was wired and I think so what was a product that was high yielding but also secured space and technology could help change that so that three amalgamation of all those three points came to two meters
00:16:10
Speaker
Two-wheeler lending was something that was ripe for disruption. It was dominated by incumbents and legacy players for the last 20 years. The same way was happening. You started seeing these shifts in consumer adorables. You saw I started seeing this shift in personal loan, but two-wheeler loan had yet to see that. And that's when after going through almost three months of research on grounds, going through dealers, realized there was a true pain point out there.
00:16:40
Speaker
What is the pain point? To answer you in a very basic manner, it's like the same customer who's getting a mobile phone, a 50,000 or 60,000 mobile phone in a span of two minutes is having to wait almost four hours to 24 hours for the same quantum of capital loan for a two-wheeler.
00:17:05
Speaker
and dealers ultimately end up losing the sale because the customer ends up going back home or moves on to a different dealer and that loss of business was coupled with the fact that
00:17:21
Speaker
The same amount of loan required as like a physical documentation, physical photograph, physical signing was extremely, extremely difficult for me to comprehend. And second most important for a product like this, where it's small ticket, a lot of incumbents and legacy players had set up branches.
00:17:46
Speaker
just for customers to come and check their EMIs, check their statement of account to come collect an NOC, no objection certificate. So, you know, there were a lot of operational inefficiency in this space and I knew technology was there to solve it. And that's the challenge which I took up, could credit wise capital, challenge these operational efficiencies.
00:18:09
Speaker
OK, interesting. And you're saying the reason for this long approval period is because there was no digital first company in this space. All the companies were legacy companies. Correct.
00:18:23
Speaker
Talking Vayner is a very unique product because you can make it 94% digital but there is a leg where that requires an RTO form, your invoice and insurance which needs a physical leg. The customer needs to sign the RTO form physically then only his tubular gets registered.
00:18:40
Speaker
But rest, a whole process could be digital. Why are you involved in that RTO form? Because the form says that this is a hypothecation. This needs to be hypothecation. The hypothecation and the physical form is required at the RTO.
00:18:56
Speaker
and without which your car doesn't get registered. But for people who don't understand, hypotication is essentially a way to tell the world that this is against the loan. Yes. This is guaranteed against the loan. Hypotication is a way that makes this product from an unsecured product to a secured product. The bike gets registered or hypoticated to the lender's name, in our case, credit vice capital.
Operational Innovations at CreditWise
00:19:22
Speaker
So if the customer defaults, we can go collect the vehicle because the two-wheelers hypothecate to credit advice capital. That gives us the allowance to go repossess the bike. Okay. And once he's paid off the loan, then there is a transfer of ownership or what happens? Yes. So that's when the credit advice capital or the lender, in any case, issues a no objection certificate and the hypothecation gets removed. So post the loan, the customer is free to
00:19:52
Speaker
Customer needs to go to the RTO and do that. Yeah, he doesn't need to. So for the RTO, for NOC, the customer doesn't need to go to an RTO. For the NOC, the customer just needs to come to his lender and get an NOC from us and his hypothetication gets removed. It's the lender's job to do it.
00:20:15
Speaker
Most of what was happening, most of the guys were doing it either branch. They would tell the customer, we will issue an NOC there. I saw then, I said, could this leg not be digitized? To give you a small example of one of the legs.
00:20:33
Speaker
Okay. So tell me what you built, like that zero to one journey. Did you first apply for an NVFC license or did you start by lending on others? Straight away, straight away applied for an NVFC license. That gave me time. We were very fortunate. We got the license relatively quick. How quick? In about three, three and a half months. Wow. Yeah. So I think the fact that
00:21:02
Speaker
So just to give my family background, family background has an NPFC itself, which is into loan again shares. I think that coupled with the fact that I had some kind of financial services or financial technology of the FinTech experience that did help in fast forwarding the license part.
00:21:24
Speaker
And yeah, we got the license in three years and a half months time when January 2019 is when credit wise capital was born.
00:21:35
Speaker
Okay. And tell me that journey, like what did you launch? What did it look like when you launched in terms of how much had you digitized? What was the customer experience at the time of launch and how was that evolved? So we started with Mumbai just because that was home town and home city.
00:21:56
Speaker
So if you feel that's closer to home, so you want to start the business around you so that you can at least have some focus on collection. The first person we hired was our head of collection, till date continues to be our head of collection. Did you raise funds initially?
00:22:16
Speaker
Yes, so a very fortunate accident that three of the individuals from my previous venture decided to almost see this along with me. So I was in this lending business, raw material is capital. So I was very fortunate that when we started this, we had decent sales, almost 50 growth of equity capital to start off with.
00:22:45
Speaker
And that does make the journey slightly easier because what happens is this business as you scale, debt becomes a harder challenge to raise the right quality of debt at the right pricing. Having the right set of equities is extremely, extremely key.
00:23:08
Speaker
You can start either with a 5CR or you can start with a 50CR. 50CR is pure play, will take you at least way longer, only not just because of the capital to build tech, but it's just more that capital to help you leverage further. I think typically there's a one is to four ratio that for N rupees of capital, you can lend 40 rupees.
00:23:35
Speaker
Yes, so NBMCs are allowed to go up to 7, but it depends on your risk appetite and how much you value good night's sleep. For me, that good night's sleep did come at a level of 3.5. Even though my ROE kicker comes at a 4.5x leverage, for me 3.5 is the benchmark. Let me understand what is an ROE kicker?
00:24:02
Speaker
So your return on equity, the higher levered you are is when you start benefiting or operating leverage. So when you reach a decent size, less amount of equity has helped to leverage it further so that your return on equity is maximum, the more levered you are. But the more levered you are obviously comes with its own set of risk. And so for me,
00:24:28
Speaker
maximum ROE goes to 4.5, 4.6x of your leverage but whenever it comes close to. Shouldn't it be 7? I mean if you're allowed 7 then if you go to 1 is to 7 that will be the maximum ROE. No, on theory 7 would make sense but as a business, our business with how we have built it,
00:24:50
Speaker
the amount of people required and additional capital required to continue with that operating expenses. You can't only just keep lending, right? You need some expenses to ensure your day-to-day expenses go. So that's why if I didn't have to pay any salaries or any expenses and obviously on my equity capital, seven excuse me, highest operating leverage, but you need to park some capital to ensure your day-to-day expenses.
00:25:16
Speaker
other operating expense. So that's like 4.6, 4.5 for a business like mine. Understood. Okay. Okay. Just to, you know, kind of simplify this a bit for this nurse. So if you have 10 rupees and you're lending out those 10 rupees and just as a simplistic example, you earn 10% on that. So you're earning one rupee. And so your return on capital is 10%. But if you have that 10 rupees and you borrow 40 rupees,
00:25:43
Speaker
or you borrow 30 rupees more and you're lending out 40 rupees, on that 30 rupees you might pay maybe some 7% interest, but that remaining 3% on that 30 rupees, that 9 rupees is your return, so that 10 rupee becomes 19 rupees, so now your return on capital is much higher. Yes, 19 rupees.
00:26:04
Speaker
Right, right, right. OK. OK. Understood. OK. Got it. So how much did you dilute for raising 50 CL in your, like, at the very seed levels? So we had a very equal split at that time, where I would be the one driving it. But this business actually looks like the complexity was this business requires personal guarantee to raise debt capital.
00:26:33
Speaker
Having had that experience with a family business, knowing that at my network, there would be a ceiling at which how much I would be able to raise debt. So to get the right set of investors also at an early stage was very, very key, where you come in
00:26:54
Speaker
equity is equal but you get all four of them to give you personal guarantee all four of you guys to give personal guarantee and that catapults you to a very different level because nobody is going today in today's day and scenario you're not going to get debt without giving your personal guarantee very honestly and today likes of
00:27:17
Speaker
massive NBFCs also that have already reached unicorn status, the founders and the founding team still continue to give personal guarantee. So that's a very niche understanding or learning that NBFC ensure that you are around the right people that are able to give personal guarantee that will allow you to scale much more and give you the right pricing for your term loans.
00:27:43
Speaker
Interesting. So there's no way the other three investors would have agreed for personal guarantee unless they have enough of a stake in it. There's nothing that shouts out skin in their game as much as personal guarantee. So that is extremely key.
00:28:02
Speaker
Okay, okay. I understood. Interesting. So, okay. You raised 50,000. Yeah, but from day one realized that while this business technology is key, technology will continue to play the role of a value enabler and not a value creator.
00:28:20
Speaker
In this business experience or the first word you mentioned the create help continues to play a value creation role and it couldn't be more emphasized enough that
00:28:36
Speaker
experience will supersede almost everything but technology mixed with experience is the right formula you need because you can't have two experienced people building this and you surely can't have because you're then you're just one of the other nvfc but you surely cannot have two tech individuals building this because that know-how that knowing of multiple cycles is it just only comes with experience
00:29:02
Speaker
So, we very early on, onboarded one of the most senior members from the industry. He comes from almost 20 years of two-wheeler and commercial vehicle lending experience from HDFC along with 10 years with HDP Financial.
00:29:25
Speaker
Yeah, experience on this side like sourcing, loan sourcing or collections or underwriting. So they were there, so this person you could read, who held a senior position. So he has overseen multiple functions from originating to credit to collection to risk.
00:29:43
Speaker
So he came on board and after almost one year of from 2019, 2020, it's been ourself and he came on board in 2020 and since then, we've been building this together. And he's come on board like a COO or a CBO. So he came, in fact, he came on board as a COO and over the last four years, in fact, he's graduated to become a co-founder.
00:30:10
Speaker
Okay. Amazing. Amazing. Okay. Amazing. So what did you launch with? You had money in the bank, which would allow you to get leverage. Tell me the journey of, you also told me you hired someone for collections. What about underwriting? We had someone for underwriting as well but very clear that
00:30:34
Speaker
Tech will help me at origination underwriting. So the focus was more on using technology for these two aspects and not collection. I know most of, I don't know if most of your listeners or you would agree with this, but I have a very strong belief that in India, unfortunately, you cannot digitize collection.
00:30:56
Speaker
You can digitize everything. I know there have been a lot of startups that have come to saying that we have digitized collection. But my experience, a lot of my team's experience, that's one thing that has just not clicked. And that was the focus from day one. Because I saw this cycle with these Vintex from 2017 to 2019.
00:31:16
Speaker
That was just not happening. So yeah, we started using technology to improve origination, improve underwriting and we started with Mumbai. Very early learned the cycles and Mumbai is not the right market. It's a rented market, rented accommodation is what I meant. So there are three major aspects, but two major aspects in Mumbai, it's broker driven. Okay.
00:31:43
Speaker
Broker is basically small shops that I've just spin off from the authorized dealer. They have one Honda active, one Hero bike and they open the small truck and they start financing from there. So a city like Mumbai or any tier one city in India which is high-rental years, it's difficult to have authorized dealers who have small brokers open up and most of your sales happen from brokers.
00:32:14
Speaker
Brokers are not the most ethical. Second, they do not have a lot to lose because they do not have an official license from the OEM. And so these cities are dominated by brokers. And if you do your business by a broker, you are bound to fail.
00:32:33
Speaker
And so that we had our learning curves very early on, very fortunate because we had not dispersed a lot before COVID came in. So when COVID came in,
00:32:50
Speaker
We had time to go back to the drawing board, figure out a strategy whether we want to be a tier one focused player or whether we can penetrate more into tier two and tier three and is that capable of doing that? So that was our initial, I would say 12 to 18 months.
00:33:05
Speaker
When you lost, were you able to hit that two minute approval that you wanted like the iPhone experience? So buying an iPhone from day one from day one, from day one, uh, uh, experience was very, very good. Uh, we were able to underwrite customers in two minutes. We were able to underwrite, uh,
00:33:27
Speaker
So the delta between our underwriting versus the underwriting of all the finances in the market was so significant. We had dealers calling us small parts of the country asking us when is credit wise going to come live to their city. So we knew we were on to something good.
00:33:43
Speaker
And how were you acquiring loans? What was the loan sourcing? Did the dealer or the bike show that they would become your sourcing agents? So what we did, we initially actually started with having people at every dealership, just like the other financers. So our right to win initially was just a quick turnaround time. That was just to get your business started, get your loan book off the ground.
00:34:12
Speaker
But time from day one actually what troubled me was couldn't believe that there were five to six individuals at every dealership from different financers just sitting there playing PUBG waiting for a customer to walk in and the dealer gives them a loan. It was like a round robin system. There were 10,000-30,000 dealers across the country today disbursing almost 18 to 20 lakh, two dealers.
00:34:41
Speaker
It's impossible to have 30,000 people on your role. That was a heavy, people intensive business. Day one wanted to change that, scale up that aspect. But initially obviously wanted to build by AUM, get it started. So from the 12th month onwards or 15th month onwards, what we started building
00:35:06
Speaker
is one of the most unique things the two-wheel industry has seen. We have a QR code that is a six-foot standee that holds a placard that says scan this QR code and get your loan approved in two minutes. As soon as the customer scans it, it redirects him to WhatsApp.
00:35:27
Speaker
Now WhatsApp is the most used medium in the country. Nobody taught us how to use it. We learned it by ourselves. The customer scans redirects into WhatsApp with chats with our WhatsApp bot. We integrated all the underwriting tools, all the disbursement capability, all the legality, assign agreements on WhatsApp itself. So what we did in effect is build an end-to-end journey on WhatsApp.
00:35:54
Speaker
My manpower doesn't have to be at the dealership. The customer comes, the dealer tells him scan this QR code, check your eligibility and the dealer gets a loan. And that completely revolutionized the whole two-wheeler lending space because we were in fact the first lender today who's doing this without a manpower.
00:36:19
Speaker
And that was our, I would say the second phase of what I do, first was attack, second was more manpower.
Partnerships and Revenue Streams
00:36:27
Speaker
So these two processes helped us scale significantly, let's say from like 2021, my AUM was 50 crores. And today we, I mean, by 2024, last year we were at 500 crores.
00:36:41
Speaker
So, in three years, scaling 10X, I think, and that itself was a testament because dealers started liking you. You are approving it quickly. Customers started liking you because you have to take your own time, speed, do it yourself, and not somebody telling you what to do or not to do. And that helped us, catapult us to the next phase of our journey. Amazing.
00:37:07
Speaker
How would the dealer get paid if he is directly scanning a QR code? Like every QR code has some location tagging to it so that you know. So every dealer has its own unique QR code. Okay. And sorry, he doesn't have to, he just has to ask the customer to scan it. If it's scanned from his unique QR code, the disbursement happens. Okay. And how much does a dealer earn when you're disbursed, let's say a 50,000 rupee loan?
00:37:32
Speaker
So on an average dealer payout in the industry range from 3 to 6%, on average dealer payout is 1.4%. Wow. How is that? So that came to our third phase, actually. We knew that so that turnaround time, we were pretty good. We were doing two minutes.
00:37:55
Speaker
We also knew that tomorrow there could be, this is not a long-term mode, some state or the other, someone will do it in 60 seconds. So that couldn't be a long-term mode. Second phase was the whole QR code mechanism, but we were facing some challenges in your tier 2, tier 3 region, the whole WhatsApp journey. What kind of challenges?
00:38:18
Speaker
or regional languages because your bot would be talking in English so obviously we built regional language but these are those customers that might be a little wary of doing the journey themselves they need some assistance so we faced some challenges in that aspect in tier 2 tier 3 because our overall vision actually was to focus more on tier 2 tier 3 and move away from tier 1
00:38:42
Speaker
So, phase 2 had its own challenges and came phase 3 which obviously was the biggest mode that we have till date is we tie up with Windex. Now let's say for example, Abharati. Abharati has millions of merchants on its platform.
00:39:05
Speaker
And they don't want to get into 2 wheeler financing. But their customers have a strong affinity towards 2 wheelers. So on the merchant app you will see a banner that says scan this QR code and get your dream 2 wheeler bike. The merchant clicks that, it redirects him to my whatsapp chat. He chats with the bot, he says I want the Honda active, my bot tells him please take this sanction letter and please go to Aryan Honda based on your location with the sanction letter.
00:39:31
Speaker
This merchant walks into Ariyant Honda and says, I have originated business for Ariyant Honda here. And my only thing to this dealer is I will not charge you for this, but you would prefer me or the other financers who are paying you high payouts. And that is the biggest mode that we have created because unlike anybody else, we are originating business materials and that's adding to their revenue.
00:40:00
Speaker
Amazing. Amazing. And the economics of this world work like this by assumption that the three to six percent which normally you would be giving to the dealer, instead of that you're giving one and a half percent and you're also able to give Bharatpe another one and a half to three percent so that not even. So the thing is with these merchants, there is no OPEX there. For most of these players, it's about showing some kind of revenue from their acquired customers.
00:40:31
Speaker
For them, the payoff doesn't range anywhere even close to this 1.5 to 3% yourself. In fact, we are less than 0.2, 0.3% because of the sheer volume that they have on the platform. So Bharatwe will get paid per disbursement or per lead? Per disbursement. Wow. And that amount is just 0.2%.
00:40:54
Speaker
Amazing. Amazing. Incredible. I think someone from Bharati who watches this podcast might come to you and renegotiate. Cool. Amazing. Amazing. Therefore, your lock on the dealer is pretty strong because you're not another financier, but you're also a lead generation partner for him.
00:41:22
Speaker
Okay, amazing. So what all do you do today? So one is you do this lead generation for the dealer, second is on the dealer location you have the QR code through which his walk-in customers can get a loan in two minutes.
00:41:41
Speaker
Perfect. Now, 55% of my customers are new to credit. They are literally, when I say new to credit for the listeners, first time boarders, they are first time taking any product on financing. In India, in tier two, tier three, it's Roti, Kapura, Makant and Gadi. Two-wheeler is like a lifeline. It's your fourth basic necessity. So everybody
00:42:08
Speaker
because of a lack of Uber, Ola's in that case, lack of buses to go from your field to your house, you need a two wheeler. So 55% of my customers are new to credit. We are formally bringing them into the credit system. Now it allows me a huge opportunity to cross sell.
00:42:27
Speaker
Same customer I will be giving him motor insurance, same customer I will be giving him health insurance, same customer I will be giving him roadside assistance, same customer I will be giving him like OPD or hospital cash. We know that today you can get your 2-3% ROI in lending, return on asset.
00:42:49
Speaker
in lending but taking it to the golden standard of like a 6-7% things what HDFC has does now you know in HDFC you open your current account first thing they will be like we'll sell you credit card, day card, 3-4 other products they'll sell you right?
00:43:06
Speaker
Yeah, a pre-approved loan. That's exactly what we wanted, who we wanted, we're the North Star. That's exactly how we wanted to build. You cross cell becomes so integral that it straight away hits your bottom line.
00:43:20
Speaker
So, that becomes the second aspect of what we do. So, there are three major verticals retail lending which we spoke about we started with two wheeler financing. A second aspect gets into cross sell, we cross sell products on where we tie up with insurance companies. What we also cross sell is via an aggregator model.
00:43:43
Speaker
Now, Akshay is a two-wheeler customer from CreditWise Capital, but Akshay also wants a 1 lakh personal loan. He comes on the CreditWise Capital customer app and applies for a personal loan, but I have tied up with AU Bank and Yes Bank on the back end.
00:43:59
Speaker
So you get a personal loan from this channel and I just get my feed card. Akshay wants a credit card. My customers have reached you definitely towards credit card because it's a status symbol in these regions. So you want a credit card, you will get it via the credit wise capital app. But in the back end I have died up with RB and I have died up with Yes Bank.
00:44:22
Speaker
So there are two ways of crossing. One is insurance by myself, second is as an aggregator. So that becomes part of my second vertical.
00:44:31
Speaker
Now, our third major vertical action is technology. We have a subsidiary under credit wise capital whose core focus is to build. So what happened is a lot of NVFCs and banks that came and evaluated us from a debt perspective would look at our system and be like, could you build the same system for us for our other products?
00:44:58
Speaker
So we saw that and what is this system, what all does it do? So at LOS, we have two products. Loan Origination System. Loan Originating System. One is an AC Lending product, which is the loan originating process. And the other product is called Easy Payout, which is more of a channel management. So when you onboard a dealer, when you onboard a DSA,
00:45:21
Speaker
their payout calculation, scheme calculation, that entire thing needs to be digitized. You would be very surprised actually today, big banks, NBFCs have a team of 30-40 people manually calculating payouts on Excel, manually calculating schemes. So to digitize that process, we have these two products. So banks and NBFCs, when they came and saw our system, they said, could we have the same two products? So that gave us an opportunity that maybe unless you've spent so much time building these kind of system, could you not monetize it?
00:45:52
Speaker
for products apart from 2 wheeler or any product that credit wise capital wants to be in. That gave rise to the opportunity and the subsidy under credit wise capital today has clients like DC new bank, Mutwood capital, Karnataka bank and the large institutes we focus on the short tail rather than long tail.
00:46:13
Speaker
And we've had almost 26 such clients that are using our products from the tech subsidy. Amazing. I want to understand the kind of revenue and margin profile for these three businesses. So you have the retail lending business, which you said is giving you about 3% return on capital employed. Correct. OK. So I'll tell you, are you lending that anywhere between 21% and 22%?
00:46:41
Speaker
In the retail lending, your cost of fund rate is from 11% to 12%. Your OpEx initially is at the higher end. It's around 99.5%. Your credit cost is around 2%. So you pay tax ROAs around 3%, 3.5%. And OpEx includes what? What is OpEx? Your expense, your tech team, your connection team, that 1.5% of dealer payout, every single expense.
00:47:09
Speaker
That's okay. Okay. And credit costs is the NPA cost. Okay. So you are at a pre-tax ROF and you have been three, three and a half percent. You add cross-sell business, cross-sell business, you earn anywhere between three to 4% on additional office 21% with a heavy margin of around 35, 40%.
00:47:34
Speaker
So you're saying 3-4% is the transaction value. Like if somebody buys insurance of 100 rupees, you get 3-4 rupees in that.
00:47:43
Speaker
No, no. So what I when I say that it's mainly like, suppose your fee income part. So today, if you're making 21% IRR, you add an additional 3 to 4% on that. So your blended IRR comes to you on 24-25%. That's the 3-4% I'm saying. And to answer your question, if I'm cross giving someone across setting someone with products of 100 rupees, my margin there is between 30-40 rupees, not 3-4 rupees.
00:48:13
Speaker
30-40% is the margin in cross-sell. Financial products don't have that kind of margin if you're selling insurance.
00:48:24
Speaker
In fact the kind of insurance products we finance are something like loan protect insurance. So suppose tomorrow you've taken a loan and for whatever reason something happens to you, your family is not burdened with the loan. So products such as this, roadside assistance.
00:48:47
Speaker
These kind of products are slightly heavier on the margin side The products that you are talking about is more on the motor insurance piece which I completely agree Those margins are slightly in the lower side, but our core focus is on loan protected choice
00:49:02
Speaker
Okay. Why not do as much as you can? Like why not also do motor insurance? Why not also do life insurance? Why not also do mutual funds? But what happens here is the dealer wants motor insurance done at his dealership. The dealer wants the motor insurance done at his dealership. So what we do is first year motor insurance is done by the dealer. The 11th month onwards we reach out to our customers and we renew it from our side.
00:49:29
Speaker
Okay, and what about other products like say investments, saving products, digital gold? Yes, so we have an opportunity because being in the FinTech ecosystem, we have an opportunity today to cross multiple products. But what happens is ultimately, I don't want to
00:49:52
Speaker
because ultimately it will impact my credit cost. If I tell this customer that he has five other EMIs he can take from creditless capital, will he pay the two-wheeler EMI, it becomes a question. Digital gold is like an easy sell, right? People from tier to tier typically see gold as the way to save. That could be an easy sell.
00:50:13
Speaker
correct so very different thought process there because in India the customer that takes gold finances gold loan is usually a stressed customer unlike unless the south if you've taken a gold loan you think gold loan or loan against gold loan against gold
00:50:37
Speaker
No, I'm saying that investment in gold, like digital gold by that kind of savings product. So things like, we have a focus where just cross and things that are very doable, like you take this customer that start investing in gold, this customer mindset is very different.
00:50:59
Speaker
He requires only things that are around him tangibly. Anyways, his average salary between 20,000 to 20,000 doesn't have that much capability to invest in other savings product, investment products, because he lives month to month.
00:51:17
Speaker
Okay, so maybe probably as we go towards come at more of a tier one customer base maybe we could introduce his products but right now because it's tier two, tier three very clear that help his customer with his requirements that is a must rather than overburdying him with multiple other products.
00:51:40
Speaker
So you would rather focus on going deep rather than going wide. Instead of offering 100 products, you would rather do a few products, but penetrate deeply those categories. Interesting. OK. And the tech vertical, we have two streams of revenue. One is an enterprise model, and another is obviously a SaaS model.
00:52:01
Speaker
where it's per approval, per login that we charge most of these clients. So that itself is a good business, profitable. All three verticals are profit centers. All three businesses are back positive. So that's the mindset that whatever it is that you're building, Akshay, especially in lending, if you are burning, you're doing something wrong.
00:52:24
Speaker
I know a lot of your listeners who are building something in lending might not be very happy to hear this, but that's just a genuine thing that if you're burning in lending, it may be
00:52:43
Speaker
reduce the tech expense or whatever it is that you have to do which is you cannot be boring that's the card in the group and that's something you've stuck with from day one at CreditWise Capital and it's helped us today. Scale to this level have the right tech partners. We are in fact the first and only co-lending partner of HDFC Bank and HDFC Bank coming and giving their sign of approval on our credit on the writing of our technology
00:53:12
Speaker
I think that itself was made of a tree. How does coal ending work?
00:53:17
Speaker
So co-lending works in two models. One is real-time disbursement where the customer on the ground, 80% is given by the co-lending partner, 20% is given by the other side of the partner, but in this case credit-wise capital. And the 80% that is the fixed hotel rate that you pay the hotel rate and anything on top stays with credit-wise capital.
00:53:45
Speaker
So it's less capital deployed from credit-wise capital perspective, but you are earning on that 20% gap, also the whole of 20% that you've linked. So that's how many books. It's a way to increase your leverage, basically. Yes, absolutely. Amazing. Without having it on your books, but you continue to earn a return on that.
Future Goals and Technological Implementations
00:54:08
Speaker
Correct. Interesting. OK.
00:54:10
Speaker
But the amount you earn from a co-lending versus borrowing on your books and then lending, what is the difference in that? No, so if you look at an ROE perspective, co-lending goes almost 3x the time of your normal on-book lending. In an ROE level, you earn more. But what happens is co-lending
00:54:36
Speaker
So prior to the FLDG guidelines was almost like a risk-free for the co-linking partner. So for them it was no risk sharing, you have to give a collateral, you have to give some kind of cash deposit and as soon as the case goes into like even a second bucket of delinquency, you have to buy it back on your book and give them a fresh case. So it was high delinquent but high yielding also.
00:55:04
Speaker
But with the new guidelines coming in, I think that itself has been cleared out. So you can have a max FLDG amount. I think 5% is the maximum. 5% is maximum on digital lending. But that makes your code rendering book slightly more lucrative.
00:55:27
Speaker
But ultimately it's looked also in a manner that what's their skin in the game if they are doing the whole thing on co-lending as well. So you have to find that right plane that works for your business. For us it's 70% on-book and 30% co-lending. And that's the ratio we always want to continue building in. But you have to find the right mix that works for your business. What is the interest margin on the co-lending loan?
00:55:54
Speaker
So because the scale that we have achieved, we've managed to get our coal ending prices equal to our terminal prices. So you will find you as a business today. By price, you mean your interest costs, like what you borrow. If you borrow 10%, so you're saying even in coal ending, you're getting 10%. But otherwise, coal ending will be slightly higher.
00:56:24
Speaker
Amazing. Amazing. Amazing. Okay. That's phenomenal. What ARR are you at right now or what ARR will you end this year at? So we will be at 15 million ARR. By end of current financial year. Yes. Amazing. This is the gross revenue basically. Yes. And for us there are only two revenues, interest income and fee income.
00:56:53
Speaker
15 million. Amazing. For us, we don't have things like GMV or any of that. Amazing. Amazing. That's phenomenal. And what will be your loan book size by the end of this financial year? We will be at around 550 crores. Okay. Amazing. So what's the way forward? We would have dispersed over 1000 crores and it will be 550 crores.
00:57:20
Speaker
We would be having almost 1.5 lakh customers. We are present in 10 states today, almost 150 cities, but completely branchless. The office that I'm speaking in is the only office in Bombay and in Pan India. We don't have a single branch anywhere else, even though we have remote locations in Bihar, Jharkhand, Odisha, everything is done without a branch.
00:57:50
Speaker
What does your organization look like? How many people do what? How many people do collections? We have the majority of the bulk. Bulk is collection and sales team. Total team organization strength would be around 400 people. I would say 80% of that is your sales and collection team. The rest of the team is tech product and senior level management team.
00:58:18
Speaker
How many in sales and how many in collection? Like equals split? Collection and yeah, would be equals split. Okay, okay. You'll be having more 500 dealers that you will be having our 150 sales team. So we've tried to remove the whole one person per dealership model because of the QO company. Amazing, amazing. How do you manage these sales people remotely?
00:58:47
Speaker
So, how we have managed is, we have a business head, it has a state head, so there is a proper hierarchy. Management happens via a sales app, where it's a pretty in-depth sales app with your
00:59:05
Speaker
dealer conversations happen via that, your targets for the day happen there, your cross-sale management happens there. I am good with sitting in the office in the cabin, have live updates on what's happening via Eat State. So I think what we have done is go very deep in a granular level and try and see what we wanted to eliminate was
00:59:33
Speaker
the state head or the sales business head calling everyone conference call, you want to eliminate that and that's exactly what happens today. 99.9 lending the companies, that's how it's been happening. So we wanted to eliminate that, can you better utilize this guy's effort and time in some way where tech can help you.
00:59:52
Speaker
Everything that we build actually is CWT's tech for a purpose to help reduce operational efficiency. There is nothing that you will see where we've just built a jazzy platform and focusing on SEO, SEM because two-wheeler is a catch-and-field product. You're going to go with a Nariel. You're going to go with your family to break the thing. So it's not going to happen online.
01:00:16
Speaker
So don't spend time on that, don't spend effort on that. So that's the DNA at CWCA, where it just improve operational efficiency using technology. Amazing, amazing. And what's the roadmap for the next couple of years? Where do you see this going in terms of categories you are in, the kind of AUM will have the reference? For us, by 27, 28, we want to reach a 3000 growth AUM from just purely two years. But we have seen,
01:00:45
Speaker
We have seen that journey where cycle customers move to two wheeler customers over the last 15-20 years. Can these same customers of two wheeler move towards a used car? India's growth coming up, aspirational product being a used car.
01:01:03
Speaker
Can the same customer move towards that used car? So obviously way forward will be to add just a couple of products in our journey with two wheeler being the backbone, how we will build and use that existing customer base to try and
01:01:19
Speaker
figure out the way to leverage that and add more products along the journey. And collection first approach will be with any product we start. So 3000 crore AUM by 2728 is the vision. For us Northstar would be the likes of an AU bank or like an SK finance that started with one product and added multiple products along the journey. Unlike a FinTech that has been able to scale in 12 to 18 months.
01:01:47
Speaker
So to give you a healthy answer, who my North Star would be, giving you a name, and who my North Star wouldn't be, is we all can take this. OK, amazing. You told me one role of tech is in terms of managing your sales force. Another role of tech is managing the customer journey. What are the other ways in which you're using tech?
01:02:14
Speaker
Does it help you in collections, in underwriting? See, what we did is we used to bucket our customer base. Akshay every month pays his EMI only via a physical outreach. But XYZ customer always pays the payment via a WhatsApp reminder.
01:02:39
Speaker
Now, 99.9 NBFCs, they just send this entire customer base to collection agencies. Now, can you not, using machine learning, figure out how Akshay's paying pattern is? How Alish is paying pattern is? Don't, no need to send the whole thing to the collection agency where you will be paying a payout for Alish with anyways paying via WhatsApp invite.
01:03:07
Speaker
That reduced our collection agency expense drastically. When does the collection agency come in, like beyond a certain days of delinquency? So second of the month is that presentation date. So any customer, when we register their eNatch or UPI, second of the month, we hit the bank account. If you're not paid, you're a bounce customer. So you can expect anywhere between 15% to 18% of the customer bounce.
01:03:34
Speaker
Then what we have done is there is IBR calling from the 2nd of the month to 7th of the month. Saying that we are again going to represent, please ensure there is money in your bank account this time. We do a 2nd presentation on the 7th of the month. If you're still Bob's, 8th of the month to the 14th of the month there is human telecalling.
01:03:54
Speaker
Please ensure there is, please pay, we are sending, go via the app or this is the link, please pay. If Akshay still doesn't end up paying 15,000 of the month, it's straight away passed on to the field name. From the 15th to the 30th, the field name comes and connects the EMI. If Akshay is still not able to pay the EMI, then the field name then just repose the vehicle and repose the vehicle and parks it at the yard. So that's the end-to-end collection job.
01:04:22
Speaker
And the agency comes in when it's the field team? Correct. So what we do, we like to keep the earlier buckets. When I say buckets, earlier allocation, customers that have just missed one EMI, two EMIs in-house. When it's the latest eight customer, the notorious customers that have just not made any payments for like six, seven months, we keep that more from an agency mindset because they have a different breed of how to collect
01:04:50
Speaker
repossess vehicles in order to collect with that kind of a customer.
01:04:54
Speaker
I've spoken to a bunch of founders who are building tech for collections. This seems to be a big area. Are you using any platforms for that? So we have, let's say we have tried with most of them. But our learning is for a product like ours doesn't
01:05:21
Speaker
is not the right fit because the small ticket loan collection has to be very granular each location you need to have that right know-how right expertise rather than just doing it digitally your Bihar customer or a Jharkhand customer or a UP customer is not going to make a payment on the phone
01:05:47
Speaker
But if you go to his house where he's living in a joint family with 10-12 people, he's more likely to make the payment.
01:05:54
Speaker
So we've had that right set of experience in the team, knowing when to do digital collection, when to do in-house collection. So we've had that learning, we've had that experience. So while it's great for most of the other products, we feel because of our size and scale, want to build this ourselves. Once we reach a certain scale and limit, maybe is when other collection agencies or these partners take us seriously because
01:06:24
Speaker
there is more cases and there is volume for them to work on. Right now a collection tech partner is more like more keen to impress an ICICI than impress a credit card capital.
01:06:36
Speaker
Right. So they will never take my collection seriously. So it's about getting to that scale and size. Okay. Interesting. Interesting. And what about underwriting? Do you use tech over there? Absolutely. That's probably one of the strongest centers because we use tech to the core. We use account aggregator. We use a lot of tools to come up with an underwriting system, underwriting decision in probably
01:07:05
Speaker
We have 211 checkpoints that we do in real life. How do you get 211 data points about a customer? You're probably only asking for Adhar and Pan, right? The customer comes with Adhar and Pan. That's it. So for example, we asked for an OTP. OTP gives me ping to the mobile operator. What kind of SIM card?
01:07:32
Speaker
he adds, is he a geo customer or a board of one customer that helps him bucket wise your customer straight away? Is he prepaid or postpaid? That helps me categorize you even further. When was your SIM activated Akshay? If your SIM was activated 15 days ago, hell no, you're not getting a loan. If your SIM was activated five years ago, at least you're a stable customer. Things like that. Just the list goes on and on.
01:07:59
Speaker
A lot of insects use device analytics like they make you download an app and then that app can read your device data like which phone are you using and what all apps do you have on your phone. But you're going through what's your journey. Yes, so we don't have that. Aren't you missing out on data which would help you make better decisions?
01:08:20
Speaker
one but we have so I'll tell you I'm sure that these guys are doing it in the most efficient manner but we were very fortunate that on our board we had people from RBI and SBI
01:08:37
Speaker
there on a board from day one itself, very against the whole data scraping, SMS reading, app scraping. So we never had even the opportunity or mindset to get the customer to download an app. Telling my customer to download an app for another loan product is going to be a challenge because he's anyway struggling for space on his phone.
01:09:04
Speaker
So, we didn't want to go that route and ultimately, at least in the two-wheeler lending space, if you are able to figure out the bank account, if you are able to figure out the stability and you figure out this contactability, that's enough. I would say 80% of the battle rather than figuring out whether he has a Facebook app or a Snapchat app and help use that tool to come up with the decision.
01:09:28
Speaker
Okay. Yeah, absolutely. The most important thing for you is income proof, right? You need to know how much he earns. How do you get income data? Account aggregator. I think that's probably one of the best tools out there.
01:09:42
Speaker
How does account aggregator work? Through the ADHAR, you get to know what accounts he has. The customer has to input as soon as he input his number, so that an OTP goes out. The customer then gets an option. All the bank accounts that are linked with his number, we get access to that. What is the current bank balance? What is the average quarterly balance? What is his
01:10:08
Speaker
EMI payments, all of that analysis happens via account aggregator. He has to allow the bank to give us access. So he does that. And he doesn't need to do bank by bank. He'll give you one OTP which will give you access to all his bank accounts. One OTP to initiate the process and one OTP that he authorizes the bank to give us his data.
01:10:31
Speaker
Okay, amazing. And account aggregator works in 100% cases or what is the efficacy of certain there are certain it works with the banks we are presenting but there are certain cases like for example in like your
01:10:46
Speaker
cooperative banks or regional banks. So there are some challenges there. So yeah, obviously it's an evolving process. I'm sure over time that will improve. But 60% of my customers use SBI and SBI is live on account aggregator. So for me, that gives me a tremendous comfort. And what is your approval rate out of 100 people who apply for a loan?
01:11:13
Speaker
approval rate is 60% and this personal rate is 50%. Why the difference? I thought approved would mean, unless they decide not to. Yeah. So a lot of times what happened is, okay, I've been approved for a loan, but I want a lower IRR. I want to lower it. I want
01:11:34
Speaker
More LTV. Give me 95% LTV. LTV is loan to value. I want 95,000 instead of 1 lakh on road price. We've approved them for 90,000 but he wants 95,000. Or just something as basic as, okay, I will come back later. I'm approved but I don't want the two wheeler today. So there's always a drop off if range is between 7 to 8%.
01:12:00
Speaker
Okay. Understood. Somebody for whom account aggregator is not working, do they typically end up being approved for a loan or? No. So then we have other checks. So for example, we asked the customer, do you put his consumer ID for his electricity bill?
01:12:16
Speaker
Then with the consumer ID, we can ping and electricity board and figure out its electricity bills and that way we can get a stability on his address. So every time either one of the processes fail, there is a backup ID. Okay. Do you also ask them to upload PDF of bank statements and all? That doesn't work, right? Because they're very susceptible to fraud. Correct.
01:12:45
Speaker
Okay, interesting. What other ways are you using tech? I have almost 500 dealers.
01:12:56
Speaker
we have a dealer scorecard where again ML2 bucket eats dealer which dealer is an E plus dealer which dealer is a C category dealer based on his past trends, how much bounce, what is the delinquency, is he on time with his documents that he is uploading.
01:13:20
Speaker
We use that to have a dealer scorecard. We tied up with a partner to help us with a thing called Affluence Code, a satellite imagery to figure out how far or how your customer lives from a scorecard.
01:13:37
Speaker
a school, place or worship, hospital or a bus stand. Now, this gives me the data, but I've added the whole bus stand piece. Why? Because I know that if this customer is living far away from a bus stand, my collection guy is not going to go to his house. When he reaches that town, he's not going to go far away from a bus stand. So that gives me my geofencing, things like that, right? Because 211 checkpoints me and you could be probably speaking for the next three hours and we still not covered that.
01:14:06
Speaker
Amazing, amazing, amazing. Awesome. Cool. Are you largely doing the ICE engines like the regular petrol bikes or are you also doing EV?
01:14:18
Speaker
So 98% of our book is Ice Engine. 2% is EV. Very, very cautious with the whole EV thing. We are waiting for it to play out because this is typically what will make our product from a secure product to an unsecured product because there is no resale value of an EV.
01:14:40
Speaker
your 1 lakh or 1.5 lakh EV without the battery, the resale is 7 to 8,000 rupees.
01:14:49
Speaker
Okay. Wow. Yeah. So we only work with those OEMs that have an FLTT agreement with us that we will repossess the vehicle and they will bite back towards us at 100% pause. So, unlike most of the, and that comes with experience and that comes with good reach experience that allows us to be.
01:15:12
Speaker
call focus that don't let the EV resale market get well established, let the infrastructure play in because the segments we are in, customers don't have money for electricity enough to last them 24 hours at the home.
01:15:27
Speaker
And I could tell this customer that you're going to be using like EV to charge your bike. It's all going to work. So we are waiting for that whole entourage plate to kick in. And that's when you will be aggressive with you. But right now, it's only with those OEMs that have 100% buyback agreement with us.
Advice for Aspiring Founders
01:15:44
Speaker
Interesting. Interesting. OK. Amazing. Cool. My last question to you. What's your advice to young aspiring founders? Things you wish you had gotten as advice
01:15:57
Speaker
I was very fortunate to be surrounded with the right set of people from a very early stage of my career so I did get a lot of good advice. I would say just filter out the advice.
01:16:15
Speaker
And I can't stress on the importance of having the right board. I know this might be again something very unfounder friendly thing that I'm saying.
01:16:33
Speaker
I started off also with what's the need for so many board meetings, unable to understand. Certain things don't go your way. But I think the biggest piece of advice is I wish I got this board much earlier, or any board. Let's say people who have seen scale size much earlier, and corporate governance is key.
01:17:02
Speaker
end up doing half the revenue but use that money or a saving and investing in the right set of an auditor. That will just help you go for the long thing. The ecosystem around us is gearing up for a marathon rather than a sprint. So be ready for a marathon rather than
01:17:25
Speaker
100 meter dash and I think that's one thing so it comes down to each founders mentality and if things
01:17:34
Speaker
If you're like, and I had this learning from my boss in, when I was working in private equity, that if someone is saying no to you, you're probably in the wrong room, all you have to do is find that one, yes. And I think that itself stuck around with me, where even when I had a lot of news when I was raising capital from my fund to a lot of times while building credit wise capital. So just try to find the right room. And that's probably my two cents.
01:18:05
Speaker
Amazing, amazing. Both these are very unique set of advices. I want to go a little bit deeper on the board piece. There is a cost of having a board, right? Because you need to pay them some compensation for getting on your board. And of course, there's a time cost that, like you said, meetings and so on. But so what's the right stage at which you should be willing to bear that kind of cost of having a board?
01:18:32
Speaker
I think it depends on, so it depends on you personally as to figure out your skill set and try to find a board that complements your skill set. You can't be master of all trades, especially when you're building early stage. My strength was technology and finance. So the board, which I did, kept focusing more on experience, getting more on corporate governance.
01:19:05
Speaker
Once you figure that out, earlier the better. Also be selective in the board. There will be one out of 100 that will add value. 99 will be there just to collect the sitting fee and collect, give you that
01:19:27
Speaker
for lack of word, the right Jain. So just find the right team and be open to criticism at an early stage. And that guidance with someone who has seen scale and size, if you haven't seen yourself, becomes very, very key. So it's not about, yeah, it is expensive.
01:19:57
Speaker
but as I rightly mentioned if you are not able to double your profits or double your revenue, invest in this irrespective and over time you will be able to get there. I would say timing wise the earlier the better in short.
01:20:15
Speaker
If you have certain capital that you have deals and you can deploy that capital, can I get expensive product help versus can I get a senior product manager but deploy this capital from someone on my board.
01:20:35
Speaker
Can that help? It doesn't necessarily have to be like an efficient board also. Maybe they have things like an executive committee or things like that that you could probably align so that you have some sounding person to go out to in an official manner. And that is something that I would surely stress on. How much does a board cost annually? Ball park? It depends. A good board.
01:21:04
Speaker
like a good board you can anticipate anywhere between depending on what size of scale you are but between 2 to between 1 to 5 lakh a month you can anticipate so typically right it comes back in the size and scale of where you are if you're
01:21:25
Speaker
It's that gap of a product manager or a senior or a product head. Can you optimize him to take you to the next level? But can you reallocate that gap and getting someone on the board? Start with one, add two and you scale. Should you give equity for getting people on your board? Like a lot of people want advisory equity. Do you believe in that advisory equity concept?
01:21:53
Speaker
I personally believe equity is more expensive than. That's me a little bit more biased man. Obviously everyone has their own thing. So you ask me today, no, I will pay you.
01:22:09
Speaker
more upfront or the fee income, because that is something that can, it's a tap. If you're not adding value, it stops. Equity once given, it's just more of a headache. So that's my personal bias, but whatever works, if you are at that stage, we're not able to even give that kind of fee, do what works best for you, because no point of having 100% of your equity, if your company is going nowhere.
01:22:35
Speaker
But my question is, I know where I'm giving equity. It's charge more, but equity. And that brings us to the end of this conversation.
Conclusion and Call to Action
01:22:49
Speaker
I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them.
01:22:57
Speaker
Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at ad at the podium dot in. That's ad at t-h-e-t-o-d-i-u-m dot in.