Fintechs and payday lenders are aggressively lending to gig-economy workers even as banks and large non-banking financial companies (NBFCs) grow more conservative in the space. Fintech lenders have seen demand from food and grocery delivery executives with various app-based platforms jump by up to 40% in Q4FY22, industry executives said. The higher demand, in turn, is being driven by elevated inflation, which is leading delivery executives to borrow more to bridge cash flow mismatches.
Lenders active in the segment believe the demand is arising out of an improvement in consumption trends with the pandemic receding. Bhavin Patel, co-founder and CEO, LenDenClub, said with a pick-up in consumption, the need for delivery executives has grown across all industries for various app-based platforms.
Furthermore, as the size of the workforce rises, many delivery executives seek small-ticket loans or advanced salaries and payday loans to meet their operating expenditures. The increase in demand is also due to the targeting of the product to the segment,” Patel said. There is not enough data to ascertain whether a surge in inflation has anything to do with the increased demand, according to Patel.
Others, however, are taking a more grim view of the situation. They point out that while prices of fuel and other essential commodities have surged, there has been no concomitant increase in wages earned by delivery executives. To make matters worse, the rise of 10-minute deliveries has resulted in an increase in traffic norm violations and fines paid by delivery executives.
A loan to a delivery executive could go up to 30-40% of their monthly income and the tenures range between a month and three months. Interest rates range between 18% and 30%. LenDen Club’s Patel asserts that there is little reason to worry about indebtedness in the segment, as loans are approved only after looking through the borrower’s credit bureau data and assessing their ability to repay.
Yet, concerns about high indebtedness remain. “The money they are borrowing now is essentially gap funding. By its very nature, it is prone to high amounts of churn, which means that the guy keeps taking loans from new apps to pay off old ones,” an industry executive said on condition of anonymity.
Given the precariousness of gig workers’ finances, large lenders have of late turned averse to financing them. Abhishek Agarwal, co-founder & CEO, CreditVidya, said banks and large NBFCS are turning cautious in the segment. “The risk perception of the segment has risen significantly in the last few months, given that the cost of living has gone up for them without any accompanying increase in their earnings. However, some fintechs and payday lenders continue to lend to gig-economy workers and the interest rates on such loans are quite high,” Agarwal said.