Startup Street: When NBFCs Were Having An Existential Crisis, This One Escaped Unscathed

This week on Startup Street, a four-year-old non-bank lender explains why it was able to skirt the stress in India’s financial sector amid a slowing economy. Three Indian startups make it to the Top 100 list of one of Silicon Valley’s most famous accelerator. And a Google-backed startup in India has raised more funds. Here’s what went on:

How Lendingkart Came Out Unhurt

The past 12 months have been tumultuous for most non-banking financial companies in India. First came the IL&FS crisis that led to a liquidity crunch in the sector. Then came India’s deepening economic slowdown with falling consumption, sales and infrastructure activity, leading to lower credit offtake.

Still, there was at least one startup in the NBFC sector which did not get hurt: Lendingkart Finance.

“While recent economic slowdown has affected MSMEs, our typical borrowers are the last-mile traders and servicers like kirana store or cycle/mobile repair shops who are dependent on making ends meet on a day-to-day basis,” Harshvardhan Lunia, co-founder and managing director of Lendingkart Technologies, the parent of the NBFC, told BloombergQuint.

“The effects of the economic slowdown on such types of businesses are still minimal. Hence, Lendingkart has remained largely unaffected and our loan disbursement count remains steady and growing.”

There’s no lack of liquidity for the non-deposit taking NBFC either. Lunia said that Lendingkart was able to raise large sums of monies from banks and financial institutions through non-convertible debentures, commercial papers and securitisation. “Currently, we have raised funds from more than 30 financial institution lenders. In fact, in the last six months alone, we have raised Rs 1,000 crore in debt funding though banks and other financial institutions,” he said.

Formed in 2014, Lendingkart has been providing working capital and business loans to micro, small and medium enterprises across India. The non-bank lender offers loans online within as quickly as three days. Since inception, the company’s revenue and loan book have almost tripled every year, Lunia said.

The company’s loan disbursal technology, according to Lunia, differentiates it from peers. “The general approach of MSME financing has been treated in a one-size-fits-all manner, without much regard to the business of MSMEs,” he said. “With our verticalised approach, we are able to understand the segment and customise our product offering of loan as per the need of the business.”

Lendingkart uses big data and algorithms to evaluate creditworthiness. Lunia said the NBFC focuses more on cash flows rather than business growth of the borrower to assess whether they should get the loan or not.

“Moreover, the self-learning algorithm improves with repayment, delays and delinquencies data, making it more robust with every repayment collected. Use of technology not only removes the likelihood of last-mile fraud and individual biases while sanctioning loans but also significantly reduces time and costs of credit appraisal, thus, making the unit economics quite attractive,” Lunia said.

All that has led to an increased investor interest in Lendingkart. The firm has raised over $200.4 million in over 10 funding rounds—the latest being a Rs 233-crore equity funding led by existing investors including Fullerton Financial Holdings Pte Ltd., Bertelsmann India Investments, India Quotient and Sistema Asia Fund.

The startup, with 600-odd employees, said it will use the funding to expand its lending bases and deepen its reach to small businesses. It expects to double its loan book within a year and is also working on several alternative data-based credit models to serve MSMEs in different sectors.

“We are also working on making our digital distribution platform more robust to both acquire new type of customers and ensure online digital frictionless fulfilment,” Lunia said. “There are many enhancements and improvements that are needed to bring the best product out.”

Three Indian Startups Among Y Combinator’s Top 100

Three Indian startups have made it to startup accelerator Y Combinator’s top 100 list based on valuations.

Social commerce platform Meesho, payment solution Razorpay and tax filing platform Cleartax were the three most valued Indian startups in which Y Combinator has invested in.

Their ranks were:

• Meesho: 28
• Razorpay: 42
• Cleartax: 74

Y Combinator chose to rank companies based on valuation even though the accelerator says that it is a “poor way” to measure a company’s value in the short term. “We consistently warn our companies not to over-optimise their fundraising for a high valuation. That said, it’s the most commonly available metric to compare companies in the startup world,” it explained in its blog. “Other metrics, like revenue, are more often kept private.”

San Francisco-based Y Combinator has funded over 2,000 startups including Airbnb, Stripe, Dropbox and Reddit. In India itself, they have funded 30 companies.

Google-Backed Dunzo Gets More Funds

Local delivery marketplace Dunzo has raised another $45 million in a fresh funding round from Lightbox Ventures, Google, 3L Capital, and STIC Investment and STIC Ventures.

The funding pegs Dunzo’s valuation at $180-200 million. The startup has raised about $81 million so far.

“Dunzo will deploy the funds to establish itself as the logistics layer for India, picking up and dropping almost anything and everything a consumer could want to buy and ship while integrating merchants and delivery partners on the platform,” the startup said in a statement.

The Bengaluru-based startup said the investment stems from its rapid growth—40 times in the last 18 months—and a business model that focuses on unit profitability. It added that it is clocking more than two million deliveries a month.

“Over the last year, we have built a model that understands Indian cities deeply and empowers offline commerce to deliver to consumers instantly. We believe in giving local merchants a fighting chance while creating sustainable earning opportunities for delivery partners,” Kabeer Biswas, co-founder and chief executive officer at Dunzo, said in the statement.