A capital idea
“To understand the ecosystem, we spent a lot of time in the offices of e-commerce companies: Amazon, Snapdeal, and Flipkart,” says Hinduja. The two got lists of the best sellers on these platforms and studied their needs and other aspects: what is the length of tenure they envision, how they would pay back, etc. “The third-party sellers had a working capital problem,” says Rishyasringa. “They needed a very short term loan that they could pay off as they sold online.” The loans offered to SMEs were then long-term loans. “They needed something like a 60-90 day line of credit with a flexible payment option,” he explains.
Capital Float’s first product for SMEs was designed with these elements in mind. The size of the loan note was around 10-15 lakh. The co-founders didn’t wait long to find out that their business model was solid and that they were on the right track. “In the early days … we came across a loan application from Bhilwara, a town in the Mewar region of Rajasthan. For a southern-based startup, it was a bit surprising. Our first reaction was, “Where is Bhilwara? Rishyasringa recalls. “It was a small store in Bhilwara that sold cell phones. And the store owner was selling on Amazon and maybe making about a few lakhs a month. It was then the only store in Bhilwara that sold cell phones in that area. The applicant was looking for a 10kh lakh loan that he could use to boost online sales. The traditional bank’s lack of options got him loans on Google and he stumbled across the Capital Float website. “Eventually we ended up giving him a loan and within a few years he became the biggest distributor of cellphones in this part of Rajasthan,” says Rishyasringa.
The lessons learned from SME lending helped him start lending to consumers. “Our learnings in the area of SMEs have helped us develop the consumer lending industry, because when you evaluate a business, you also evaluate a promoter. In-house technology and infrastructure are also easily transferable into the consumer lending space, ”says Hinduja. Today, consumer loans represent 40 to 50% of Capital Float’s activity in monthly volume.
Samit Ghosh, who built one of India’s most successful NBFCs, Ujjivan Financial Services, believes fintech NBFCs like Capital Float are doing a good job. “They bring a lot of new approaches to how to get credit, and how to assess and provide credit. We, instead of trying to fight them, would rather join them and work with them. This is our approach, ”says Ghosh.
Industry experts point out that micro, small and medium enterprises have offered huge growth potential to NBFC fintech, but the challenge is to build capacity, not only in big cities but also in small towns while maintaining the rate. low fault. “A higher default rate remains a concern in the medium term, offset by higher returns, but with the arrival of more players in the business, returns would eventually go down and defaults might not go down… this remains the defining challenge for the space, ”explains Vineet Rai, President, Aavishkaar Group, an impact investment firm.
Capital Float has had to discontinue certain products due to an increasing rate of default. “We were funding taxis for the drivers of Ola and Uber, but there were a lot of defaulters. It was a product segment that we didn’t quite understand. It didn’t go as planned. We learned a lot from it and as we developed other products we made sure we had a manual to follow, ”says Hinduja.
According to documents filed with the Registrar of Companies (RoC), Capital Float recorded a loss of 92 crore yen in fiscal year 18, while its total turnover was 135 crore yen, in 154% increase from a year ago. He wrote off ₹ 16 crore in bad debt against ₹ 1.8 crore in FY17. The founders say that in the short term there will be ups and downs, but focusing on the long term is essential. “The challenge is how fast you can grow while still being cautious about risk,” says Hinduja.
Meanwhile, The Economic Times reported in February that Capital Float was in talks with PayU, the Naspers-owned payments company, to raise around $ 150 million at a valuation of $ 500 million. Later in May, the daily reported that a full sale could occur at a lower valuation. Capital Float declined to comment on the deal. However, if this happens, existing investors will benefit. Now, what is the moral of this story for the opponents? A little bit of belief is a good thing.
(This story originally appeared in the June – September special issue of the magazine.)