Getting a loan/Hailing a cab. Which one’s faster?

Pratima H

NEW DELHI, INDIA: When someone speaks at almost 300 kmph and still makes every word and thought easy, crisp and engaging to comprehend; you don’t roll your eyes when this very someone says that loans can be dished out in a matter of seconds.

But you do want to dig deeper into what makes these ‘ultra-fast’ processing times possible? If Capital Float claims it has disbursed India’s fastest loan in under 10 minutes (by partnering with India Stack), is it darting where people crawled because it is working its scissors over red tape? Or because it has a glue that suddenly connects hitherto-unseen white spaces?

As radical and about-time the concept of an online chest that allows SMEs to dig in for fast and handy working capital is, it’s hard to fathom how exactly it gallops the way it appears.

We sit down with Rohan Angrish, CTO, Capital Float, a two-year-young venture that already boasts of having originated over Rs. 700 crores of loans till date (the highest amongst any Fintech startup); having raised $42 million in equity funding since inception (the highest funded fintech startup in India) and an Android app which on its own has enabled 85 per cent of the documents being submitted. Two years back, the idea would have been easily dissed because of looming hurdles like compliance, IT-un-inhabited hinterland of India and the propensity for small borrowers to lean towards a neighbourhood money-lender and cash.

But today, as we grapple with the Rs. 500 note strike all across India, incidentally, many cogs of the conventional financial machinery can start to sound a bit anachronistic. There’s surely more to it than what can be assumed. So let’s hear it from a CTO who is not only confident about digital/cash-less loans but also not apprehensive about how AI, Blockchains and Machines would affect the industry - and soon enough.

How would you describe Capital Float? Where exactly does it fit in the spectrum between venture capital and micro-credit?

Capital Float is an online platform that provides working capital finance to SMEs, operates across 100-plus cities in India, and has leveraged technology to build a differentiated model that is able to deliver credit to the smallest of businesses in a scalable and efficient manner. It is about flexible, short-term loans that can be used to purchase inventory, service new orders or optimize cash cycles. It is different from VC segment because that’s a different market. We wanted to see if we can leverage innovative thinking with technology to disrupt the financial space in a constructive manner, specially on the area of access to capital and how it works in India.

It may sound like we were looking for diamonds in a rock but it turns out that they are not hard to mine if you are looking for people with an unmet demand of some 200 billion dollars and who can still furnish a credit profile if one approaches the problem creatively. This is how banking should look in the future – aware, creative, fast, agile, intelligent and problem-centric. We have addressed a big segment of small players who were waiting to be addressed. The way we see it – tomorrow’s big businesses are today’s small businesses.

How strong is the app-angle and digital role here? Specially on the speed and ease side?

We have an Android app on which 85 per cent of the documents can be submitted. We use digital in a deep-cutting way. For instance, we have conceptualized & launched a one-of-a-kind customized credit product called Pay Later that enables SMEs to make multiple drawdowns via just the Capital Float mobile App. The money is disbursed within four hours of the request. This is a revolving credit facility, wherein the entire sanctioned loan amount can be re-used as soon as the payment is made by the customer.

We make it possible for borrowers apply online, select desired repayment terms and receive funds in their bank accounts in three days. Capital Float lends amounts ranging from Rs. 25,000 up to Rs. 1 crore and the turnaround time (from loan application to disbursal) varies from 15 minutes to a couple of days.

Now why is this speed not contradictory to the KYC thrust that RBI has, and for the right reasons? How do you balance the two sides?

Besides the online mode, when we think of mandatory requirements such as KYC and legal documents, it has an offline footprint, too. We are RBI regulated and there is no way we want to, or can, cut any corners. But interpretation and execution of regulation is still a bit grey in the way other players have approached it. We are asking what exactly qualifies as KYC? As long as the essence is satisfied, potentially even a social-media picture or a verified OTP can help to accelerate the process.

We are not loosely interpreting regulation as other players do who then do what they think is right until the regulator comes back. We nail it creatively but in an uncompromising and precise way. Modi’s vision for India in financial context is three-pronged – financial inclusion, digital and corruption-unfriendly. Interestingly, making things cashless and digital fulfills the other goals too.

How easy is to change the cash-heavy or habit-dominated behavior though?

The biggest hurdle is access to capital and if being a digital and technology-enabled lending institution, we are urging people to have digital habits and footprints; it is quite an incentive for change and perhaps a pragmatic and easy one too.

Rohan Angrish

Is the eco-system helping you well – digital documents, signatures etc.?

It is not always easy but that’s why we are doing it. We have tried to flip the problem with creative use of technology, algorithms and ideas. We don’t ask them what they need to submit. We ask them what they can submit and suggest a product that is possible with that data.

For what can be better - a Catalyst-India Stack study has indicated a lot of possibilities. Regulators can provide more clarity in regulations around Aadhaar based eKYC; around applicability of authentication and verification (eKYC) processes in the lending business and help in streamlining auto debit (ECS, NACH and Postdated cheques) methods. We need to promote concerted efforts to drive consumers to update Aadhaar records.

Is the technology ingredient a crucial one then? What’s your take on imminent trends like AI, Bots, Machine Learning etc.?

Fintech solutions, through their advanced predictive algorithms and data analytic capabilities, are already in a mode where they are rapidly emerging as the most viable channels that allow Indians to spend wisely, save better and earn more. I look at technology as a tool to solve problems. Yesterday, we were doing it through hardware. Today, it’s software. Tomorrow, it could be bots or machine learning. Technology is the way forward for finance, and Fintech is the enabler for its continued growth.

Look at how today Smartphones with a host of Fintech applications installed in them, are already fast becoming the new credit cards. My role starts when a domain person brings in a problem – it can be a problem of how to make sure a Kirana Store-owner sitting in a small city in MP can apply and get the loan easily. The solution can come through technology and automated solutions are helping a lot.

Is then your model readily amenable to architectures like the Blockchain?

Yes, specially for the parts of the process where trust is a big element. We are looking at it and experimenting on how Blockchain can improve the process, specially because when the entire financial system is predicated on trust, this model says – you do not have to take anyone’s word now, the world’s word is open and the word now. It is surprising why Blockchain has not seen the kind of adoption it should have. Anything that hinges on trust finds a ready answer in Blockchain.

Even after the Ethereum episode?

Yes, there is no flaw in Blockchain per se. In fact, the incident only became possible because of the inherent real-time strengths of Blockchain. The loopholes were in the contract and that were what got exploited. What we need are better contract experts to tap this mode successfully.

Are banks and conventional lending players your competition? What’s your proposition – competitive interest rates or speed?

Every player can be a partner instead of a rival. We have common problems and each player can fix parts of the big problems and contribute together. We provide access to capital in a ‘now’ flavor and with a great experience.

Have NPAs or collections started emerging as potential problems? Any other challenges?

No, the percentage of bad loans is low because of the quality of loans and because we treat all money like it’s our money at stake. The default rates are low. We would also tap options like the local Kirana store owner for collections and reminders because that person is hyper-local and knows people in a personal manner. One lesson we did not anticipate learning was aligning our speed of processing (in minutes) to the time window that partnering institutions take (in months). That can bring some layer of friction and learning.

How much scope the market actually has?

Customers have often experienced the need for working capital (small ticket sizes for lesser time durations), which they meet through informal borrowing at interest rates of 36 per cent to 60 per cent per annum if I can cite from a recent India Stack Project report. Further, they were often forced to borrow additional loans to repay the interest accumulated from a previous one, putting them into an endless debt cycle.

We have undertaken specific experiments conducted with iSpirt. There are two levers that can help unlock credit for low income customers  – using proxies to assess credit worthiness, and using technology to reduce the costs to serve the financially excluded. The emergence of digital payments, and the creation of digital data trails (e.g., transaction histories) provide a unique new source of information to unblock credit services for this segment.

Also, replacing costly, and time consuming procedures such as collection and storage of paper records (bank statements, ITR, KYC, etc.), scrutiny of 'wet signatures', and secure handling of physical cash, can reduce the overall costs to acquire and serve low income customers.

Any way that a digital platform helps a lender as well?

Swinging back to the India Stack Project report, lenders were able to access a new segment of customers, were able to tap into net new customer segments. Like, from catering to online merchants, Capital float was able to provide small ticket size loans to off-line merchants. Also lenders can underwrite loans for businesses which reported lower turnovers compared to their traditional customers and give out loans for tenures ranging from 6 to 18 months. They can service consumers from much lower income segments (vs. their traditional customers), providing small-sized 'nano' loans compared to typical MFI loans. In fact, lenders were found optimistic that the India Stack would bring down their cost of lending over  time, thus allowing them to offer borrowers more favorable terms.

So you are excited and confident about the future?

Absolutely. What we have found out with encouraging adoption rates is that there is willingness to change in a positive manner if it is nudged in the right way. To the SMEs out there I can say that - move to the digital and cashless system for better access to capital and let’s work together to push India into a digital age.