Money lending gets a millennial makeover via this app

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You can now ask for money to buy a fancy meal through an app, saving you from an awkward situation with friends. While borrowing from friends and family has been the age-old way of finance, relationship-based loans have been a growing trend in the country for the high rate of interest it offers when bank fixed deposits and saving accounts are offering meagre returns. SaveIN, a Gurgaon-based startup, has made the concept of Peer to Peer (P2P) lending more millennial by turning the process of getting a loan from an unknown stranger to your social circle, who could be anyone in your contact list from your friends, family, business partners, office colleagues to mere acquaintances. It has created a marketplace of lenders and borrowers by real-time discovery within their respective social networks.   

Social loans are informal loans that are primarily done through cash and mostly have no digital footprints. But with the thrust on digitalisation, startups have started tapping into this offline market.

“Social or informal loans are very natural and intrinsic to Indians. Many people in India do it for a living, given interest rates are meagre in the bank and fixed deposit and inflation are very high. We have digitalised this entire supply chain,” said Jitin Bhasin, founder and CEO of SaveIN.

Moreover, with job losses and pay cuts amid the lockdown, relationship-based as well as P2P loans are back in currency. According to a Home Credit India Finance survey, about one out of four people borrowed money from their friends and family during the lockdown mainly to manage daily household needs.

Peer to Peer lending

There are P2P platforms such as Lendenclub and Faircent that facilitate lending. Peer to Peer is for those people who want to lend to unknown people. You lend your money through a platform to some unknown person where that anonymous person is underwritten by the platform, which you may choose or reject.

“Offering investors an average portfolio 13% XIRR in the last FY, P2P lending is today emerging as one of the most potential alternative investment asset classes. It is performing way better than other fixed-income investment options such as — fixed deposits, mutual funds, etc,” Bhavin Patel, co-founder and CEO, LenDenClub told Money9. 

How different is the concept of social loans from P2P loans? “We are not doing financial underwriting, and that way, we are different from the P2P platform. We are a ledger or personal accountant for every Indian. We provide services as a personal accountant where we facilitate money transfer through digital channels following up with automatic payment reminders in a very non-intrusive manner.”

“Moreover, we have capped the interest rates and the loan amount. While the loan amount is up to Rs 20,000, the maximum interest that one can charge is 36% annual. The person will be competing with other people in the network. The borrower is free to choose the lender. There is also in-built messaging to negotiate interest rates,” he added. 

What happens if a person defaults?

“If you have taken 3 loans and if you pay on time, you will have a good score. We give this to the bank, which can give offers based on this score. But, on the other hand, you cannot take another loan if you don’t pay. So the informal credit rating also affects.” said Bhasin.

Informal credit score

Considering 80% of people do not have a credit history in India, many companies want to tap into this informal alternate credit score market.

“If you have never borrowed from the financial institution, you will not have a credit score. Financial institutions lend to people who have a good credit score. It is a chicken and egg situation. We are also addressing this problem. We want to record all loans and provide alternative credit history.”

Similarly, FinBox, a fintech company from Bengaluru, provides customised credit products to their customers and partners. It uses privacy-friendly and explicit user-consent driven flows to analyse behavioral data and non-personal SMS data to assess borrower creditworthiness.

“This data is used to construct ‘features’ or independent variables, which are then put through machine learning models to recognise patterns that differentiate between high-risk and low-risk customers. This process results in a ‘score’ that provides guidance in terms of a credit decision to the lender. This entire process is driven by user consent, and the access to data is use-case driven and time-bound. It cannot be sourced for one purpose and then used for another,” Anant Deshpande, co-founder at FinBox told Money9.

In the next phase, SaveIN plans to create a neo banking platform to offer digital bank accounts and digital debit cards in partnership with regulated banking entities and increase engagement activities.