Having been around for just over a year, Finomena has already sourced loans worth `20 crore for 10,000 customers who aren’t able to access banks. It uses both online and offline channels to attract customers and helps customise loans for them. Founders Abhishek Garg & Riddhi Mittal tell Shobhana Subramanian they hope the business will break even in the next couple of years as the customer count reaches 50,000-1 lakh a month. Excerpts:
What is your core competence?
We facilitate and customise loans for customers in the age group of 20-35, many of whom are non-salaried and unable to access banks directly. We work with NBFCs—80% of our book is with them—and we do the credit risk appraisal through an algorithm; the lenders too do a credit appraisal.
So we serve as a business correspondent and business facilitator. Our universe extends to 600 million people. But we don’t focus on students or people who are not earning.
Do you get penalised for loan losses?
Yes, we have to ensure the defaults don’t go up and we share the risk with banks. We do pay a penalty, not for individual loans, but for a portfolio. Since the average loan maturity period is 10-11 months, it’s too early to talk about NPAs.
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What is your business model?
We operate online via the app, which has seen four lakh downloads so far. And we are present at 400 electronic stores in Bengaluru. Our book today is worth around R20 crore across 10,000 people, so the average ticket size is R20,000. We facilitate small-ticket loans for products such as electronics, furniture and educational courses and in categories such as laptop loans, which banks may not always be able to underwrite.
How do you customise loans?
We are able to tweak the loan tenures, and convince the lenders to sanction such products. Banks typically tend to be rigid but some lenders are flexible because we are building the software for them. So, for instance, while there may be late fee to be paid, it will be classified or treated differently.
What other services do you offer?
We also act as collection agent for the lender and allow the customer to pay across channels—mPesa for instance— and not necessarily the bank account. We are making collections flexible and easy; we also collect cash at stores.
What is your revenue model?
For sourcing a loan we earn on average a blended 1-3% of the loan amount. We also charge some amount for scoring the loan. Collection services come free if the customer is paying for the two other services. But if we are only sourcing and not scoring then we charge for collection in the range of 5-15% of the EMI. We have to pay 2% on the mPesa gateway.
How fast can you grow?
We are looking to do 50,000-one lakh loans a month and are working on pilots with larger banks. Bajaj Finance does six lakh loans a month and at some point we should do it faster; that’s the beauty of technology.
And how soon will you make money?
We hope to break even in two years. The idea is to make money both from the first loan and the repeat loan so that the cost of acquisition goes down. We have been able to drive down the costs and the average ticket size should go up in the next couple of years as we add products. We want to add personal loans to our portfolio.
After receiving seed funding from Matrix Partners and a couple of angels in March, 2016, we are now in the market for some Series A funding.