Recently, LenDenClub raised $1 million in a funding round led by Artha Venture Fund. “We are a marketplace of quality loans for individual investors,” says Bhavin Patel, founder, LenDenClub.
Peer-to-peer (P2P) lending enables individuals to borrow and lend money without any intermediaries. Usually, a person who is looking to invest (Lender) his/her money lends it to another person (Borrower) who is looking for a loan. This is where P2P lending platforms like LenDenClub come into the picture. Recently, this fast-growing lending platform raised $1 million in a funding round led by Artha Venture Fund. “We are a marketplace of quality loans for individual investors,” says Bhavin Patel, founder, LenDenClub, as he discusses the micro-lending platform’s business model and future plans in an interview with Sudhir Chowdhary. Excerpts:
How did the LenDenClub story begin? What was the problem you were looking to address?
I was leading the finance team at an NBFC, and one of my teammates could not secure a personal loan as his loan amount was too small. That was when I realised that short-term loans are a huge problem, and I could build a solution that catered to such borrowers. India needs an alternative to the NBFC business model—this eureka moment pushed me to ideate a P2P lending platform.
What is the present business model and how has it evolved?
We are a marketplace of quality loans for individual investors. Our algorithm-driven platform connects these investors to pre-verified borrowers. Initially, we used to map one investor to one borrower. However, we soon realised we needed to change this approach as the lender was getting exposed to a limited number of people. We changed this by mapping a borrower to multiple lenders and reducing the size of the one-to-one ticket from Rs 50,000 to Rs 1,000. This change diversified the lender’s risk and increased returns. The lenders have rewarded us by giving us more capital and referring their close network to us. We also changed our earning model; instead of charging only the borrower, both parties would pay a fee. We earn around 3% from lenders and 5% from borrowers over the life of the loan. For example, if we disburse a loan of Rs 10,000, we earn Rs 800 from the transaction.
How has LenDenClub managed to scale up 20 times in less than 20 months?
We focus on identifying the root cause of the problem and solving it. For example, our initial loan offering was Rs 25,000-Rs 5,00,000, but we would receive loan requests of Rs 5,000-Rs 10,000 from our borrowers. We started identifying these requests and looking into the borrowers’ financials and past credit data. We realised that there is a scope of small-ticket loans and addressing this significant need. The pivot to solving the problem that the market was telling us helped us grow.
What have been the biggest challenges?
Our biggest challenge for the first two years was to set up a proper collection process and mechanism. Next was to onboard credit-worthy borrowers onto the platform. We had so much capital coming from our existing lenders and their referrals that even a 20x growth in the last 18 months is insufficient! Usually, in the lending business, you have an abundant supply of borrowers and not enough lenders. Here we had a reverse problem!
You are operationally profitable. How have you balanced growth and profitability?
When you run the business on a tight budget, you search for ways to leverage business opportunities and maximise returns for each rupee spent. From the very beginning, we would think twice before incurring any expenses. We developed a cost-people-time matrix, where we evaluated the value added by each cost.
We incur the expenditure only if the answer is positive. For example, most startups spend lakhs of rupees to get their initial product designed by design companies. Our analysis of the cost-people-time matrix suggested that this expense was not required. So, our functional teams collaborated with each other to create simple yet effective designs. The results speak for themselves—since September 2018, we have been operationally profitable.