The fundamental premise behind alternative lending is clear: provide cheapest-in-class access to credit to borrowers, who may or may not have access to credit from traditional banks or NBFCs. Let’s take two examples:
1) Aditya Kumar is a 29-year old software engineer at Sigma Infosolutions – a mid-sized IT solutions provider based in Bangalore. He has never taken a loan in the past – always managing his expenses within his earnings. He has recently been promoted and received a large increase in his salary, and he wishes to move to a larger apartment. However, he needs 2.5 lakhs to pay the rental deposit on the new apartment he wants to move into.
Aditya applies to HDFC, ICICI and Axis bank – all of whom reject him as he doesn’t qualify for a loan, because:
a) He has never had a loan in the past, and hence has no credit score or history (“CIBIL” score as it’s commonly known)
b) His employer, Sigma Infosolutions, is ranked as a “Category C” (or high-risk) company by most banks & NBFCs.
Aditya applies to Qbera.com (a marketplace alternative lending platform) for a personal loan – and gets approved, because they evaluate his income, stability, spending patterns – and deem him to be a creditworthy customer. Aditya gets his money within 24 hours and can now move into his dream home!
2) Aditi Kumar is a 40-year old executive at an Infosys based in Bangalore, earning a salary of 1 lakh per month. Aditi has had a few rough years, and several unexpected expenses arose 1 year ago, causing her to miss a few payments on her credit card. Her credit score is below 720, the threshold for any bank to even consider her for a loan.
Aditi wants to go on holiday to Australia, for which she needs an advance of 3 lakhs. The company, as a matter of policy, does not give advances to its employees. Even though Banks & NBFC’s will happily give personal loans to Infosys employees – because of her credit score, Aditi knows that they will most likely reject her (and further worsen her score). Aditi applies to Qbera.com for a personal loan – and is approved, because Qbera recognises that her delayed payments were an anomaly, and that she is a financial responsible individual. Aditi takes the loan and goes off to Australia, repaying it in easy EMIs on her return.
Most banks & NBFC’s in India still adopt traditional measures in assessing the risk of potential applicants. They will reject applicants for generic reasons, which may include: little (or no) credit history, the “quality” of the employer you work for, or even the zip code that you live in! It also takes banks & NBFC’s significant time to approve & disburse loans – even up to a week (or more) in some cases. This causes problems to people who require loans for exigencies.
This is a huge opportunity for alternative lenders like Qbera, who can use alternative data & technology to assess non-traditional parameters to assess a person’s creditworthiness, and provide access to loans in a quick, reliable and transparent manner.