NPAs is a function of three things, the quality of underwriting, i.e risk assessment, the industries or geographies of focus, and what happens to the industry, says Amit Sachdeva, CEO and Co-founder, CoinTribe.
On an August rainy afternoon, Amit Sachdeva, CEO and Co-founder of CoinTribe talks with Nishita Nathani of Financial Express online about the unsecured lending, challenges of unwriting, NPAs to banking reforms. In a collection of Fintechs, CoinTribe is a new addition. Well, not so new. Leveraging on the inherent weaknesses of traditional banking and changing the way loans have been given, CoinTribe focuses on meeting the capital needs of micro, small and medium enterprises. “With most financials not being completely credible, we rely on bank statements and CIBIL records to underwrite” reveals Amit.
Starting his career in business consulting, Amit learned the importance of machine learning and technology in solving the existing lacunae of the banking industry. CoinTribe has recently raised $10million in a series-B round of funding led by private equity fund Sabre Partners.
Here are the edited excerpts:
Cointribe is an online platform to give loans to micro, small and medium enterprises without any collateral. Tell us more about it.
In a nutshell, we are the uber of MSME lending. The idea is to become the aggregators of lending space partnering with banks and NBFCs. The challenge is in bringing uniformity in the customer experience. While one bank can take 1 year, another may take 30 days to process a loan. We have been active for 2 years now from July 2016 precisely. We have an AUM of around Rs 225 crore. We have partnered with seven banks and NBFCs, including Yes Bank, RBL Bank, IIFL etc. The biggest problem in MSME lending is underwriting the loan. Underwriting is the risk of the borrower defaulting in loan repayment. With most financials not being completely credible, the risk assessment has to be precise. The proprietor generally has three or four versions of the financials.
If not using the financials, what methods and process Cointribe use to assess the risk?
As loan aggregators, we use a unique risk algorithm to assess the risk. The second thing is documentation control. The form which is filled by one loan applicator goes to 10 different banks, which reduces the operating cycle and enriches the customer experience. Since the financials are not credible we don’t ask for financials at all. We data mine bank statements which have multiple insights. The second thing we use is the personal credit score and the companies’ CIBIL records. We also triangulate banking and CIBIL records.
Is the expense of building a data-backed algorithm and heuristics a one-time expense?
The expense of an algorithm is an ongoing refinement. Right now, we have 40 odd technology and 5 data science teams. Some of them work on finding ways of enriching the present user experience and customer satisfaction and some work on the present algorithm. We are thinking of using GST records as well in assessing risk.
Why only MSME lending? Is it because of the huge gap of Rs 2.93 lakh crore in the small enterprise lending space?
Right now we want to focus on the capabilities of banks. If you look at MSME, the ball game is different because the risk assessment is different in MSME than a personal loan. While entering the MSME lending, we spent a considerable amount of time studying the banking behaviour and micro cash components. It is easier to look at a person’s bank statement and figure out the credibility. However, it is not the same for an enterprise. The cash component is about three things — a) the industry you are in, b) location of the enterprise, and c) banking behaviour.
There has been an increase in banking NPA owing to financial fugitives scams and not-so smooth-roll out of GST. How has the NPA been like for Cointribe?
NPAs is a function of three things — a) The quality of underwriting, i.e risk assessment, b) The industries or geographies you are focused, and c) what happens to the industry. What happens to the industry hits the individual enterprise. Having said that, our NPA has been 2 per cent. Our base case assumption on NPA is 3 per cent. We expect it to be 1.5 -2 per cent going forward. GST and demonetisation led to working capital blockage for a lot of vendors. It has impacted the entire MSME industry. The textile industry is one of the industries which is badly hurt leading to higher NPAs.
The default rate is too high, what has motivated Cointribe to offer unsecured lending apart from of course having an in-house specialised underwriting?
A lot of people get secured loans. Secured lending is hurt as well. Most banks give secured loans looking at the assets because they cannot figure out who is a good or a bad borrower. With the real estate price going down, even with the secured lending banks do not get the loan value back. So we leverage on the risk assessment algorithm and give unsecured loans.
What are the short to medium term goals and objectives of the company?
We have the objective of strengthening our presence in Gurgaon, the city we operate in. Also, to start expanding in cities like Ahmedabad, Bombay and other Tier-1 and Tier-2 cities in the forthcoming years. Apart from this, we want to spend more on the technology and make it foolproof. Going forward, we do hope to break even in the near future. Apart from this, there are other ideas, the team is brainstorming and we are excited to work on.