Facebook, with over 340 million users in India alone, has partnered with a technology startup, Indifi, for the initiative. Indifi alone will decide the eligibility criteria like the credit worthiness of the borrowers and bear the risk of loan defaults
NEW DELHI: Hundreds and thousands of advertisers who use Facebook in India will now be able to apply for loans up to ₹50 lakh at a predefined interest rate of 17-20%. Businesses partly- or wholly owned by women will get an additional 0.2% reduction in the applied loan interest rate, the world's largest social networking site said on Friday.
The loan programme announced today is Facebook's first-of-its-kind initiative worldwide.
Facebook, with over 340 million users in India alone, has partnered with a technology startup, Indifi, for the initiative. Indifi alone will decide the eligibility criteria like the credit worthiness of the borrowers and bear the risk of loan defaults.
Facebook India Head, Ajit Mohan said a “significant" number of the approximately 200 million businesses using Facebook, WhatsApp and Instagram across the world come from India. He added that 15 million businesses use the recently launched WhatsApp Business platform today. Facebook owns WhatsApp and Instagram and allows businesses to use products built across these apps.
Headed by Alok Mittal who set up Canaan Partners in India, Indifi is an SME-focused lending platform that has been operational for the last six years.
The company already provides zero collateral loans to small businesses in the country, but the partnership with Facebook gives it the chance to reach more borrowers in the country, said Aditya Harkauli, chief business officer of Indifi Technologies. It has also increased the disbursal amount to up to Rs. 50 lakh.
Indifi uses digital processes to do know-your-customer (KYC) checks and verification of companies. Harkauli said while the company has a non-banking financial entity (NBFC) of its own, it also partners with private banks to provide loans to SMBs. Businesses will be provided a loan marketplace to choose from in a bid to get the best rates.
To be sure, Facebook had announced a $100 million small business grants programme for 30 countries including India last year. This was meant to help small and medium-size businesses (SMBs) affected by the pandemic. Mohan said about $4 million in grants has already been deployed to over 3,000 Indian SMBs across five cities--New Delhi, Gurgaon, Mumbai, Hyderabad, and Bengaluru.
Mohan, meanwhile, insisted that Facebook will remain at an "arm’s length" from the actual loans and lending process. The company won’t be involved in determining who is eligible for the loans, or their recovery. Indifi will be evaluating the business and will bear the risk of lending. There is no cap on the number of loan disbursals for the businesses.
Facebook also hopes to work with more insurance providers in future for such initiatives.
“While the rationale for the SMB grant was rooted in the financial crisis that occurred as a result of the pandemic, we are deeply aware that there are other structural challenges that have been around for a long time — particularly related to credit and funding," Mohan said.
“Multiple studies have indicated that the estimated debt requirement for the MSME sector in India is anything between $200-400 million," he added. The company also spoke to small businesses in the country, a third of whom said they were struggling to keep cash flow intact.
The new Small Business Loans Initiative was announced at an industry event organized by the Federation of Indian Chambers of Commerce and Industry (FICCI). Amitabh Kant, chief executive officer of government think-tank Niti Aayog, called the initiative a “step in the right direction" while delivering the keynote for the event.
Rameesh Kailasam, chief executive officer (CEO) of startup industry body Indiatech.org, noted that representatives of small businesses have asked for such loan programmes in the past from the government that originally led towards the Prime Minister’s Mudra Yojana (PMMY). He said that while smaller no collateral loans do happen in India, they come at really high interest rates.
The government, on August 2, had announced a disbursement target of Rs. 3 trillion under the PMMY for the current financial year, compared to Rs. 3.21 trillion sanctioned last year. The PMMY scheme offers credit of up to Rs. 10 lakhs to banks and NBFCs for entrepreneurial activities to SMBs, including new enterprises. Indifi also falls under the PMMY scheme but isn’t actively working in that domain right now. Harkauli noted that the company has seen demand from its customers for PMMY loans.
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