Blighted Moth Effect

After Kingfisher

• Lender’s assessment of repayment behaviour is being questioned

• Borrowers find getting around ­potentially disheartening, complex loan ­procedures tough to navigate

• Tech-fin companies have begun to blend finance and technology to ­create templates for small entrepreneurs and other borrowers

• They examine a borrower’s intention to repay using software, algorithms, bank credit policies, social media profiles and online presence.

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Ankit Rehani, 26, a budd­ing entrepreneur, was glued onto his nightly TV when news of Vijay Mallya’s dep­arture flashed. It took a  while for Rehani to make sense of the booze-to-aviation tycoon’s fli­ght, leaving behind a Rs 9,000-­crore mountain of d­ebt and an outraged republic. He is still shocked. “Let’s see what happens,” he says. “Mallya does say he will be back later this month, but so far he seems evasive.”

Rehani himself is indebted. Last year, to grow his online knick-knacks business, he approached two technology finance ventures—LendingKart and Indifi—and raised around Rs 5 lakh, though he had never borrowed before. He understands business involves risk, but cannot fathom how Kingfisher spiralled out of control. “I repay loans—I don’t know why some big companies cannot. I examine market conditions and competition first, maybe that’s why I can do what the big people cannot,” he says. “If you borrow, you repay. It’s your management, your funds, your business, not somebody else’s liability,” he believes.

Not just Rehani, many freshly-minted entrepreneurs scoff at Mallya for not being able to repay. Earlier this year, Mumbai resident Ashwin Gurjar needed Rs 25 lakh for his business, a phone recharge portal. The debt crises—coupled with the frustratingly slow col­lat­eral­-centred approach that India has adopted towards its small borrowers—threatened to throw a wrench in the works. Gurjar ­finally asked for a loan at rubique.com, which helps small businesses access loans. “They interviewed me over phone, took my documents and presented my case to banks. I got approved within days. It would have taken months, had I gone directly,” says Gurjar.

Gurjar’s credentials were ­examined by Rubique and then by the banks. His ten-year association with Tata DoCoMo went in his favour, but that wasn’t all. His books also had to be in the clear. He had been very careful never to default on a payment, had no pending credit card debts, never allowed a cheque to bounce, and generally ran a tight ship. “We are the small guys. The Mallyas of the world know how to play with banks, manage things at the top and they can manipulate the books as well,” he says.

In the eyes of smaller, younger entrepreneurs, Mallya didn’t just fail to repay debts as the world economy took a turn for the worse after 2008. They consider him solely ­responsible for running his empire aground. What has now come to light—that Mallya could get Rs 9000 crore advances by offering collateral worth just Rs 800 crore— also irritates them. They believe the big guys fence private assets beyond the reach of investigators, knowing things may turn sour. “It’s all about neeyat (intent) and nexus. Def­aults are either a result of miscalculation, or you earn in penny but spend in pounds. Mallya was enjoying himself with money that wasn’t his,” observes Gurjar.

The outrage over Mallya’s ways cannot be written off as sour grapes either. The debt crisis has hit India hard, and young entrepreneurs are hit the hardest. The top 30 defaulters are said to owe banks 40 per cent of all unpaid debt. Thanks to the big fish, and Kingfisher, the weightages lenders ­accord to client behaviour are themselves being reassessed. After all, small borrowers end up paying more to compensate banks for written-off loans. At present, of every Rs 100 lent by banks, nearly Rs 11 is either unsafe or written off—much worse than the figure, nearer Rs 5, prior to 2008.

From the small entrepreneur’s point of view, big business has hoarded both the good credit and the bad debt, leaving them in an unfair mess. They find getting around pote­ntially disheartening, complex loan procedures tough to navigate, and the wait times at banks excruciatingly long. “It is extremely tough for small players to access loans, especially working capital, without collateral,” says Anil Bhardwaj of FISME, a small industry lobby group.

Ashwin Gurjar’s Request For A Loan 25 Lakh Was Processed In A Wee

So much so that injecting speed and ease into the loaning system for small players has become a business model in itself. “Customers can’t demand loans. In fact, it is they who must meet the bank’s loan criteria. If they don’t fit these criteria, it can be extremely painful,” says Manavjeet Singh, founder and CEO, rubique.com. Rubique got around this problem by digitising the credit policies of leading banks. The company’s job is to blend ­finance and techn­ology to create templates for small en­tr­­epreneurs and other borrowers. These templates assess loan requests by cross-checking them aga­inst an applicant’s age, paying capacity, income and track record.

“We moved beyond rates and tenures to capture data on borrowers that helps ­approval chances,” says Singh. Under the system, an applicant who ticks the right boxes on Rubique’s platform gets ‘in-principle’ loan approvals, not just a set of quotes to follow up on. As RBI guidelines bar lenders from giving final approval to loans online, borrowers and lenders sit across a table for the last mile. Around 10,000 have applied for loans on the Rubique platform and 2,700 were approved.

Now, as Mallya’s empire crumbles, the small guys are redoubling efforts to qualify for advances. They’re willing to share information from offbeat sources, such as their social media accounts. This is where technology finance, or tech-fin, hopes to make its mark. “Early adopters are ready to let us take their online behaviour into account to determine their credit-worthiness. This includes the hundreds of digital data-points available for each individual,” says Adhil Shetty, who runs BankBazaar.com.

So, someone like Ankit Rehani’s presence on online platforms such as Snapdeal, Paytm, Amazon, Flipkart and ShopClues feeds into a growing pool of borrower information that the government doesn’t track right now. Tech-fin hopes to assess whether entrepreneurs are fly-by-night based on how long they’ve had social media profiles, how good their online approval ratings are. Retailers, small entrepreneurs, even cab drivers now generate a ‘digital exhaust’ so detailed that ventures are growing around it. If customers allow it, BankBazaar can examine, say, fixed deposit accounts to determine stability and social media  footprints to see how effectively they network, or post-paid bills to assess reliability.

Alok Mittal, managing director, Indifi Technologies, says, “Over time, we want to discover how online profiles relate to credit-worthiness.” This will help tackle the myth that smaller players—who lack collateral—are more likely to default. “With these sources, we can augment what we know from income-tax returns. We’re creating better risk profiles than ever, going beyond what CIBIL can tell us,” he says.

Mittal says that cab drivers whose income is tracked by Ola, travel agents on e-commerce platforms, and others on JobsAhead, Amazon, Flipkart, etc have brought thousands of small businesses online, along with their ratings. These make fraud detection and identity issues less troublesome. Though we’ve yet to see how well it is closing the demand-supply gap in SME credit, there’s got to be a wish in every heart that Mallya’s mischiefs had been online, aggregator-led. That way, we’d know how much loans the banks should have really given him, without a CBI probe.