Fintechs raise Rs 1,400 crore from private credit firms in H1

Fintech lenders are increasingly turning to private credit firms to raise funds and diversify their borrowing sources. In the first six months of the current calendar year, these lenders have raised nearly Rs 1,400 crore from private credit firms, according to industry estimates. Some major deals include Fibe raising Rs 750 crore, Kissht securing Rs 100 crore, and Grip raising Rs 83 crore during this period.

“Even with higher funding costs, fintech lenders are turning to private credit firms to secure the capital needed to fuel their growth. They seek growth capital, even if it comes at a premium,” Ankur Bansal, Co-founder & managing director, BlackSoil Capital told FE. “In the long run, this pricing is not permanent. Typically, it decreases as the fintech expands and the trust between the two firms strengthens over time,” he said.

The cost of borrowing varies across companies based on their size, with those having larger assets under management or bigger loan books getting funds at relatively lower rates, added Bansal.

BlackSoil has invested nearly Rs 200 crore in seven fintech firms including Mobikwik, Slice and Rupeek in the first half of the current calendar year.

Other deals between fintechs and private credit firms were for amounts less than Rs 100 crore. Among the fintechs that raised funds from private credit this year were Lendingkart, M2P Solutions, Jupiter Money, Moove, and Epimoney.

Securing funds from private credit firms is costlier for fintechs compared to banks. According to industry sources, while banks lend at around 11%, private credit firms offer funds at rates between 15% and 16%.

From a lender’s perspective, returns on these investments, though riskier, are consistently superior during prolonged periods of low interest rates, attracting investors to these types of investments.

Private credit offers flexibility, quick execution and greater confidentiality, say fintech firms.

“Banks are relatively slow in responding while it private credit firms have a very quick turnaround time,” said co-founder of a digital lender. “India is growing economy and the demand for credit is high in the country. Fintech lenders want to diversify their sources of funds,” he said.

Initially, deals between fintechs and private credit firms start with small amounts, but the scale of funding increases over time as trust builds between the parties, he added. Private credit, which is essentially non-bank lending provided to corporates on a bilateral basis, has grown fourfold over the last decade, according to the Reserve Bank of India.