With delayed repayments, RBI moratorium impacted the cash flow cycle of lending companies negatively, says mPokket.
The Covid-19 pandemic has accelerated the digitalization in several sectors. Banking and non-banking finance sector too are not different. Digital lending has seen greater penetration during the lockdown and afterwards. With several small-ticket or large-ticket loan provider FinTech companies available, getting a loan is not as difficult as getting from a bank is. mPokket is one of the significant players in the Indian FinTech sector.
The Kolkata-based digital lender provides loans to the borrowers ranging between Rs 500-20,000. The instant loan app claims that it instantly credits money to the users’ bank account or digital wallet.
After disbursing around Rs 700 crore in the last fiscal, now mPokket aims to disburse more than Rs 1,200 crores in FY20-21, marking over 70% YoY growth. Also, after reaching out to college students and young working professionals, the digital loan provider is targeting new business segments including self-employed people, micro-businesses etc, for expansion.
Autofintechs spoke to Gaurav Jalan, CEO & Founder of mPokket to learn about the digital lending industry, its challenges and what’s the way ahead.
Edited excerpts below.
Q. What is the current status of the FinTech sector in India, especially in the light of the Covid pandemic?
When the lockdown was initiated, the general slowdown in economic activity affected the fintech sector negatively. Subsequently, as adoption on online commerce increased rapidly, the fintech sector in general also benefited and saw significant growth.
Lendtech companies faced a slightly different dynamic. Many borrowers faced a cash flow disruption with the advent of the lockdown, and this actually persisted for a long period of time. In addition, the RBI moratorium on loan repayments compounded this impact.
So fintech lenders were, in general, were impacted negatively as loan repayments declined materially during the lockdown. With the moratorium ending it is also becoming clear that delinquencies for the loan cohorts that came due during the moratorium period are quite high. However, the good news is that in the last few months economic activity has rebounded strongly and delinquency trends are now normalizing.
While each lend-tech company has been impacted differently, we are pleased that despite the adverse effect of the lockdown and moratorium, mPokket has now exceeded pre-COVID activity levels and the business has been growing rapidly for the last few months.
Q. How is FDI helping the Indian FinTech sector?
Fintech is a young industry and the business models of companies in this sector are still evolving. Since almost all companies are in high growth and experimentation mode, there is a massive amount of capital required.
While domestic funds are available, FDI has played a very important role in financing the rapid growth in fintech. Equity capital is available both from global VC and Private Equity Funds and also strategics such as PayU, Mastercard, etc.
Foreign debt capital is also available but to a much more limited extent, given the regulatory restrictions and conditions on debt inflows into India. FDI investors have often seen similar business models evolve and scale in other countries and therefore are sometimes willing to make investment bets where domestic capital may be more apprehensive.
Q. How has the RBI moratorium impacted the Indian FinTech sector?
Since the moratorium delayed repayments, it did have a negative impact on the cash flow cycle of lending companies. Other than delaying repayments, there is also potential for moral hazard as borrowers may demand more concessions and be less likely to repay after having availed the moratorium.
While we have seen some negative impact due to the moratorium being implemented, we have been able to manage reasonably well, and our delinquency trends are now mostly at pre-COVID levels.
Q. How are technologies like artificial intelligence & machine learning helping the Indian FinTech sector?
Fintech companies in every domain – whether lending, wealth management, insurance – gather a large amount of data on their users in the process of delivering their services. This information is then used to make critical decisions and optimize various processes.
Given the very large amount of data involved, it is best leveraged by using AI and building ML models to reach actionable conclusions. Whether it is to decide whether to lend money to a potential borrower, to detect fraudulent documents, or to decide which mutual fund to recommend to a saver, AI/ML models can help deliver such decisions.
Q. There are several key trends that are changing the FinTech sector. How is the Indian FinTech industry trying to leverage from it?
You are correct that there are several trends that are benefitting the fintech sector.
First, is the continuing increase in internet penetration via smartphones and the falling cost of computing capacity in smartphones. This allows more people to access the services of fintech companies and in a seamless manner.
Second, is the increasing prevalence of API banking, which allows fintech companies to integrate with banks in order to facilitate instant money transfers without any delays, and also access many other banking features instantly. In addition to API banking, the general availability of APIs for other services as well if a big boon for the fintech sector as it allows companies to offer various services through API integrations rather than having to build it themselves or introduce delays and manual processes in the user experience.
mPokket aims its base of 1.2 million KYC approved borrowers to grow to close to 1.5 million by the end of FY21.
Third, is the launch of UPI, which has become the largest payment network in India. The ease of use of this channel has helped many people start transacting online.
The RBI has been forward-looking as a regulator and there are many more innovations such as the Account Aggregator framework which are in the process of being rolled out. Such enablers will immensely help fintech companies in creating new services and achieving greater penetration.
Q. What is mPokket’s expansion strategy? How has been the growth path in FY21 so far?
mPokket started out offering personal loans to college students and have expanded into the young working professional segment as well. Over time we intend to continue making our products available to newer customer segments like self-employed people and micro businesses. We will also expand our suite of products over time to offer our customers more options in terms of both credit and other financial products.
We expect to disburse more than Rs 1,200 crores in FY20-21, which implies greater than 70% YoY growth. Our base of 1.2 million KYC approved borrowers should grow to close to 1.5 million by the end of the fiscal year.
Q. Majority of mPokket customers are Gen Z and millennial population. Why so?
mPokket’s objective is to serve new to credit customers who do not have access to borrowing from other sources. So we have designed our product and built our systems and process to be able to serve the Gen Z and millennial population.
This segment of the population is largely ignored by traditional financial institutions as they rely on standard metrics like a CIBIL score to evaluate their creditworthiness. mPokket does not rely on the credit score to evaluate potential borrowers but does so using algorithms that leverage multiple alternate data points.
Our small ticket short term loans serve to bridge temporary cash flow shortfalls faced by our borrowers. This helps empower the youth to manage their finances better. By limiting the ticket size and repayment duration, we encourage them to become thrifty and prudent with their financial planning at an early age.
In addition, by demonstrating good borrowing behaviour, our borrowers have the opportunity to build and improve their credit score much earlier in their life, which will prove to be very useful when they eventually turn to traditional financial institutions like banks for larger needs like auto or home loans.