How This 100X.VC-Backed Startup Is Trying To Democratise India's Lending Space

India’s financial services sector has been on a rapid growth path. Over the last couple of years, the country has seen several new products pop up to elevate India’s relationship with money. Leading the charge of this innovation have been India’s fintechs who have in the past few years grown rapidly with the help of their creative India focus solutions.

One such fintech, that is trying to bring changes to India’s secured credit landscape is 50Fin. The company in July made headlines as it raised ₹4.25 crore in a pre-seed funding round led 100X.VC, Keynote Capital and Arun Venkatachalam.

So we sat down with one of the company’s founders to know more about their plans to disrupt India’s lending space.

50Fin: The Company

“Our thesis for starting 50Fin was to make sure that anyone who is a retail investor in India, no matter how small their portfolio is, should have access to credit. The vision is of digitising and democratizing loans against shares and loans against mutual funds for the country,” This is how Aditya Srinivas Prasad, co-founder and CEO of 50Fin, defines the startup.

“Over the last two years, roughly around 200 million loans have been accessed by Indians digitally. But the surprising fact there is that out of these 200 million loans, 32 million loans have been charged over 200% interest per annum. Which for us was absolutely absurd. Why was someone paying 200% per annum? Which nobody can really, in reality, pay back,” he adds.

Here is where Prasad saw an opportunity. “Out of these 200 million borrowers, 40% of those borrowers, had some form of investments in the capital markets. That’s where we saw that these are people who have small portfolios, the banks, and the NBFCs want them to have minimum loan sizes of ₹10 lakh. So you need to have a ₹20 lakh portfolio to be considered for a loan against shares.”

Prasad then goes on to explain that anyone who has investments in India can apply for a loan through 50Fin for amounts as small as ₹25,000 online within minutes.

How It Started?

The company was founded in 2022 by Prasad and Darpan Samir Tanna. “Both of us have been friends for the last seven years, we both graduated from Purdue University in the US. I specialised in econometrics and public policy and Darpan specialised in computer science research,” Prasad tells Benzinga India.

He further talks about what made them return to India and start 50Fin. “The reason that we came back to India is that we saw a huge gap happen and we saw this happen in Fintech primarily, we wanted to get into lending tech. But when we looked across the entire spectrum, right? You look at the banks and NBFCs and all the different credit products. One thing was very, very clear that if you look at 2012 to 2016, during that time, personal loans and business loans, two things happened to these products, one is digitisation, what used to take you roughly five to six days to get a loan happened, now came down to around a few hours or a few minutes and the second is democratisation.

“So what used to be? Let’s say, a five lakh minimum loan size, a 10 lakh would be loan now that size started being spoken about in the thousands. These two things digitization and democratization happened across banking products.”

However, Prasad explains that these changes failed to happen in loans against shares and mutual funds. “We found this gap in the market that you had roughly around $600 billion (₹49.9 lakh crore) worth of securities held by retail investors in India and nobody was tapping into that market,” says Prasad elaborating on why they chose this market.

The App

Prasad took us through the entire process through which someone could apply for a loan against their investments and explained that the idea behind the design was to make sure that the consumer does as little as possible. The first few steps involve signing on to the app, submitting your PAN details and cKYC.

“You go ahead and press one button that says fetch portfolio. You receive an OTP from CAMS and KFin which are the registered transfer agents in India. After that, you can see your entire mutual fund portfolio. So, if you have a ₹1 lakh portfolio and it consists of equity ETF (exchange-traded fund) hybrid, mutual funds, we give 50% loan to value. So ₹50,000 max. If you have debt mutual funds, we give you an 80% loan to value or ₹80,000 max,” Prasad explained.

Talking about the interest rates offered, Prasad highlighted that this is where the company is trying to democratise loans and offer equal opportunities. Giving an example he says, “Let’s say you have 10 Reliance shares and I have 10 Reliance shares, you have a ₹1 crore salary and I have a ₹1 lakh salary, the problem here is 99% of the time, you will have a better interest rate than me.

And that is no not fair. So what we went ahead and did, was we standardised it across the board, whoever comes based on the portfolio, we will provide it at 1% per month on the app. So when I say 1% per month it comes to 12% per annum, which is still incredibly competitive in today’s market, where fintechs are charging between 25 and, 100% in reality.”

See Also: This Startup Wants To Help You Own A Brand New Thar For ₹1.5 Lakh – Benzinga

The Underwriting Process

In a lending business, one of the most important aspects is underwriting. Underwriting refers to the evaluation process conducted by a lender to determine the creditworthiness of an applicant and determine if they should be approved for a loan. When asked how 50Fin goes on about this, Prasad said that 50Fin is not a bank, an NBFC or a housing finance company or any form of regulated lender, it’s a technical service provider.

“Being a TSP what we had to do first, when developing our entire tech stack was to convince the lenders that you base the loan off the underlying portfolio, but we will help you maintain the risk. And the way that we maintain the risk is we cloud containerize each loan.

“The very simple way of explaining this is to imagine that there are these large bubbles. Inside these bubbles think of 10,000 dots, right? Each dot will represent one loan. Each of those 10,000 dots has different combinations of underlying shares and underlying mutual funds. So you have 10,000 different permutation combinations of underlying securities. So, what we do is, we’ve written a risk maintenance algorithm it checks into this entire bubble. All of these loans are checked, every 30 seconds for what is the live loan-to-value ratio according to the market trading hour? What is the risk of the loan? How much of the entire loan book is comprised of single-scrip exposure, and double-scrip exposure? What are those single-scrip exposures made out of?

“So we have a bunch of data points that come to us and we’ve been able to achieve that by partnering with not only the Google Cloud platform but also Sears in India to make sure this entire process happens really well.”

Prasad went on to tell us that these checks happen once a week in the top NBFCs and banks in India, but because of their ability to do it every 30 seconds, they have managed to convince their lending partners to let go of credit scores, income or physical documentation when lending.

The Funding

Over the past few years, the startup ecosystem in both India and the global arena has encountered significant challenges primarily due to a noticeable reduction in available funding. This funding scarcity has posed difficulties for numerous budding startups as well as those in later stages of development.

So when we asked Prasad to tell us about his funding journey, he said that since his first startup was micro venture capital firm, that helped him gain insights from the other side of the table. “The first thing I realized was whether you’re in a good funding market or a bad funding market does not matter. What matters is, if your startup is positioned for positive cash flows, which you can execute. And that’s the key thing that we focused on as well. We run a very lean team here. We have a very clear path to profitability and that’s what we showcase to our investors and that’s what we’re delivering today and that’s the first point regarding the funding process.

“The second point is I think most of the founders what they end up doing and what I did initially as well was to reach out to a bunch of people, right? You reach out to 200 VCs out of that 100 respond, out of that you get 50 calls, out of that 50, you get 15 second calls and out of that one or two end up investing.

“That’s the usual conversion ratio. What we realised was that was very inefficient and what you should do is not speak to aggressive investors, but to aggressive operators, people who have built companies, themselves and understand what it means to build a business that for us changed the way that we approached funding.”

The company currently has around 32,000 downloads, half of which are monthly transacting users. The company is also looking to partner with top AUMs in the country. Prasad said that the company is on track to disburse loans worth ₹100 crore by March 2024, and aims to disburse around ₹1,500 crore in loans by March 25.

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_{Note: The interview was recorded on July 24.}