Mumbai: Lenddo, a credit assessment financial technology company, has started discussions and is tying up with large banks and non-banking finance companies (NBFCs) to provide customer rating services using non-traditional tools.
The company aims to use a mix of basic credit information from bureaus, bank data, digital footprint, psychometric analysis and application form analysis to arrive at a more defined customer assessment, so that lenders can make more informed decisions when lending to customers with annual salaries between ₹ 1 lakh and ₹ 8.5 lakh and micro entrepreneurs.
According to Richard Eldridge, co-founder and chief executive of the company, “credit bureaus usually have none or very little information about these customers as they are usually first time borrowers."
Eldridge explains that typically banks do not chase smaller loans as the price of assessing the eligibility of the customer is high, making the whole process unviable. Lenddo’s proprietary algorithms enable it to be done at a much cheaper cost, he added.
The Singapore-based company, which started operations in 2011, focussed on online lending till 2014 before moving on to leveraging technology to provide services for third parties such as banks, other lending institutions, utilities and credit card companies. It presently operates across 20 countries including Asian nations like Indonesia, Philippines and South Korea.
“The customer profile of Lenddo in India forms a very wide spectrum going from traditional lenders such as large and mid-size banks, non banking financial corporations, financial technologies looking to open up new avenues of lending to Individuals and SME’s to e-commerce firms looking to verify and create financing options for their merchants and customers," said Abhinav Haldia, country director of India, Lenddo.
Lenddo enters the Indian market at a time when a number of domestic financial technology companies are also targeting the credit assessment segment. Each of these companies claims to enable quicker lending to a wider set of customers who cannot be assessed using typical credit metrics.
While some non-banking financial companies and peer-to-peer lending platforms have started to adopt these methods, banks appear to be treading cautiously.
The emergence of new age credit assessment firms is an important tool at a time when banks are pushing the pedal on retail loans as corporate demand has dried up.
Credit bureaus grew in prominence after the unsecured lending market crashed during the financial crisis of 2008. Large private sector lenders and foreign banks had to deal with heavy defaults in the segment owing to a lack of proper customer data and liberal lending policies. Following this, most retail lending decisions have now shifted to a credit score-based lending system.
According to data available with the Reserve Bank of India (RBI), retail loans for scheduled commercial banks increased by 19.1% year-on-year to ₹ 14,22,700 crore as of 27 May, 2016. In comparison, industrial loans grew by 0.9% year-on-year to ₹ 26,63,300 crore in the same period.
“The regulators and government response towards usage of non-traditional data and the latest technology to assist any type of financial institution in extending credit to unserved and underserved sectors has been very positive, as long as the appropriate risk frameworks are used and consumer rights protected," said Haldia.
However, not everyone seems to share the optimism.
“The model needs to get tested in India for those who are claiming they use data from social media platforms. The difference between us and non-traditional agencies is that we provide a behavioural scoring model based on income history which predicts the course for next 12 months," said Harshala Chandorkar, chief operating officer of CIBIL. The largest credit bureau of the country has information on 550 million accounts, which it has collated from banks.