Reported by: banking|Updated: June 22, 2017
MSME lending has always been a challenge for banks. TAB Capital, a new NBFC, is converting that challenge into an opportunity:
Digital India is experiencing a revolution in lending practices and processes. Digital lending is invading the space of traditional lending. It has begun to show signs of prominence and is becoming a leading method of funding, particularly for the Micro, Small and Medium sector.
Globally, online lending has started to transform the traditional lending business through the use of high technology in order to reduce operational costs, underwrite with surrogate data points and remarkably speed up lending processes.
TAB Capital Ltd, a Non-Banking Finance Company (NBFC) registered with RBI, is aiming to position itself as the best digital lending NBFC for SME finance in India, based on its speed and convenience.
CA Abhay Bhutada, Managing Director at TAB Capital, elaborates: “We want to be the preferred choice for MSMEs seeking finance, irrespective of their locations, time and the industries that they operate in. Our prime goal is to become the most trusted digital lending NBFC platform where MSMEs can apply online for loan anywhere, anytime and get quick in 2 days. We made the whole lending process a more pleasant and apply online for loan anywhere, anytime and get quick in 2 days. We made the whole lending process a more pleasant and hassle free experience.” The company boasts of sanctioning loans within 2 working days after the customer has provided all relevant loan related details online.
For MSMEs, the traditional lending process is a stringent and a demanding task. Taking cognizance of this, TAB Capital has created a simplified digital lending process where a customer can easily apply for a loan and also track his/her loan application process online. Being automated and streamlined, this process remodels the lengthy loan processes into a completely digital solution which is paperless (and hence fast) and customer-centric (and hence beneficial to the borrower.)
TAB Capital started its operations in March 2016. Due to the uniqu model, branchless banking and lower operational cost, it is one of the first NBFCs, which has generated operational profit from the first year of operation itself. “We at TAB Capital have made the lending process online with efficient work ethics and the company has maintained record of zero NPA from the day of incorporation,” declares Bhutada with pride.
The company is unique among NBFCs to have made a profit in the first year itself,
while the timeline for typical NBFCs is 3-4 years. Some start-up NBFCs have sunk huge amounts of venture funds in aggressive growth with no sign of profits on the horizon. Bhutada chooses to be conservative and profit focused.
TAB Capital’s business model evolved after years of research by the promoters of the company. Bhutada is sure that the business model is unique and cannot be imitated by any competitor financial institution. Copying would take a few years at least.
According to Bhutada, digital lending will make each channel function in sync with others. Customers expect that each lending arm works seamlessly with others, so that they do not have to fill in the same data repeatedly. The major focus for lenders should be to improve in this domain. He adds: “Yesterday’s MSME organizations have become today’s large corporates. So, why not provide an effortless, seamless lending platform for them?” For MSMEs, TAB Capital provides a wide range of financial solutions based on their diversified business needs. It currently provides loan products like Equipment/Machinery Loan, Merchant Cash Advance against POS Machine Transactions, Working Capital Finance and General-Purpose Business Loans, to serve various capital requirements in the MSME segment. The company is always on a hunt to design new products in order to cater to diversified needs. It also provides the facility to give top– up on the loans every 6 months or provide an extended line of credit for their customers.
Says Bhutada: “Unlike traditional banks and lenders, who rely on collateral security and financial ratios, we analyze the credit worthiness of a business by understanding the profile of the customer, cash flow, business model, social behavior and personal discussions with the promoter. Our loan size ranges from `2 lakh to `1 crore, with the average loan size being around `10 lakh.”
SMARTER RISK MANAGEMENT
The company is generating online leads through Facebook, Linkedin and SEO. It has over 1 lakh followers on Facebook. In service sectors, the company has clients in hospitality, healthcare and contract centers. In the manufacturing sector, its clients include engineering, automobile, and machine tool firms. The company also has professionals like doctors, CAs and architects as customers. It avoids funding jewellery, real estate and similar risky sectors.
TAB Capital does not give loans to first time borrowers. Bhutada explains: “We look at about one year’s track record of borrowing. We not only check financial statements, but also VAT returns, electricity bills, salary payments, etc.”
The company has appointed portfolio managers, who take care of existing customers for renewal and every quarter they visit these customers. Though the lead generation is online, there is always physical personal discussions. Visit to business and residential premises is compulsory. Also, either a guarantor or a co-applicant required before granting the loans.
Data from mobile phone records, prepaid top-ups, mobile bill payments and mobile browsing, and app download history can be used to assess consumer risk and determine the creditworthiness of underserved customers. Lenders can use the output of their credit scoring to offer unsecured, small ticket, short-term credit at a much lower cost than traditional loans.
In India, there were 220 million (18% of the population) smartphone users in 2016. This is estimated to rise to 340 million (28%) in 2017. There are about 150 million feature phone users, who are eligible for an upgrade to smartphones. Social media friendly smartphones bring the browsing power of the net to your fingers for as low as `5000. To stay relevant in such an environment, TAB Capital is promoting loan products through all digital marketing activities to reach their target audience.
The company mainly uses digital marketing activities to target its customers, as it is a digital lending company. It uses SEO on-page and off-page activities, social media marketing and search engine marketing – Google ads, email marketing, content marketing, etc – to reach out to prospective customers. Bhutada reveals further details about the online activities: “We keep monthly marketing budget of up to `2 lakh. We usually spend near about 1.5 lakh for online marketing, and about `0.50 lakh for offline activities. Recently, we have been doing online marketing activities aggressively on Facebook, Google and other similar channels. The main motto of organic and paid marketing activities is to promote loan products, to increase traffic on our website and ensure lead generation.”
He adds on the use of the print media: “For brand awareness, we are focussing on print media. Recently, we have given product ads on prime business papers like Times of India and Economic Times, and this has resulted in several loan applications on our website.”
TAB Capital has a team of dedicated, skilled and experienced professionals who are committed to serve the SMEs, professionals and entrepreneurs with regard to taking care of their financial needs irrespective of their size of business. After thoroughly understanding client requirements, the products are tailored and personalized on the basis of the specifications provided by clients, which makes them exclusive to the particular client and their business. “Giving our clients what they want is our specialty when it comes to lending,” affirms Bhutada.
THE WAY AHEAD
The various factors which the company is working upon are creation of extensive product line, strong geographical and digital presence and a strong capital base. The company is looking to raise equity of `100- 150 crore over the next 2 years. The equity infusion will be used for strengthening its data science capabilities and enhancing its technology platform.
Bhutada delves further into the expansion plans: “We will open 10 new branches in semi-metro cities and will increase the employee strength from 50 at present to 100, in the coming months. We have no plans to apply for a deposit license. The current operating cost is low, as most of the sourcing is done online, and hence the customer acquisition cost is negligible.”
TAB Capital also intends to launch a mobile app for customers by September 2017, using which, a customer will be able to download account statements, NOC, etc, documents.”