In India, alternative lending is the second most funded and one of the fastest growing segments in the fintech space.
According to a PwC consulting firm report, there were more than 158 new startups in the space as of 2016. While 27% of founded companies obtained funding, as of October 2016, alternate lending in India received $199 million in funding across 33 deals, almost doubling 2015’s funding of $103 million across 21 deals.
Bangalore-based KrazyBee is one such startup that provides small-ticket loans to students. It said that their two-and-a-half years of experience proves that students can be trusted with credit.
KrazyBee, run by Bangalore-based Finnovation Tech Solutions, attracted funds from China-based mobile vendor Xiaomi last year. The company has partnered with Xiaomi to offer exclusive credit service to its customers.
According to Wan Hong, co-founder of KrazyBee, less than one per cent of students have defaulted on their loans, which is a very good rate. Educating students on credit and their trust on the company, Wan said, is one of the reasons for their success.
Prabhu Mallikarjunan of The Passage talks to Hong about how KrazyBee is going to evolve in the coming years.
Courtesy: Sujith Sukumar
P:How do you see KrazyBee evolving in the next two years?
K: For us, offline presence is very important. You go to any college and ask any student what KrazyBee is, and they will know. We have sponsored too many events and college fests with them, so they know us. We have 2,000 students as our ambassadors. Even if you are a big giant, this will take time to build. These students have been working with us for so long, that some even find replacement for us when they graduate. We have the advantage of high volume which fetches us better offers. If we don’t have volume, Amazon will never give me no-cost EMIs, it’s not possible. We are strong in terms of being a brand, sales volume and offline engagement.
P: What was the disbursement in 2017 and how much are you planning for the next 1 year?
K: It was around 150 crores in 2017. We want to triple that in 2018.
P: A lot of mobile phones on Amazon and Flipkart are being available at no-cost EMIs or low-cost EMIs. Why should a student opt for KrazyBee?
K: We have low-cost EMI as well for a few select SKUs (Stock Keeping Units). Apart from that, we have strategic tie-ups with a few brands as well. On Amazon platform we have launched low-cost EMI. The volume at which we have grown, we are ready to even get the benefit from manufacturers specifically for students. Low-cost EMI is for credit card holders that a student will not be able to get. At a time when no lending agency trusts them, we stand by them and that is the reason we have grown exponentially. Our default rate is crazily low, which means that the students are good and can be trusted. We have less than 1% default rate which is amazing.
P: How are you leveraging technology and human resource in the collection system?
K: We mostly rely on the trust that we have on students. But for sure, using technology and educating them matters a lot. The students are taking the loan for the first time and you have to educate them properly. We take awareness pretty seriously. We tell them loan details before they take a loan, during and after they have taken a loan.
In all the three phases you have to educate them in a right way. It is not some money you can take and not return it. When they are taking this loan they are compliant. They have to sign a loan agreement and they have to get the KYC done. So, these are the guidelines that they have to follow. We send them SMS three times, before seven days of repayment. Education matters a lot. There is a continuous engagement happening between us and the college, so they know our brand and I think that is one of the reasons that the default is less.
P: How do you see the change in repayment in Tier I and II cities?
K: In the last 2.5 years we haven’t seen major default from Tier I or II cities. From the default part there is no difference, but Tier I cities are faster at adopting to credit. With Tier II cities it takes time. We have been present in 20 cities and out of these 30-40% buyers are from Tier I cities and the rest are from Tier II and III cities.
P: When you compare this to the China market or global market, how do you see the default rate?
K: I am not sure about the China market as I have not done business there. Let’s compare this to an Indian bank. An Indian bank cannot reach this rate (less than one per cent). We are a licensed company and in case a student defaults for more than 180 days, we will have to inform the regulatory body. You’ll be surprised, but students care about this a lot. Even before they are taking this loan we explain and inform them. On the website, we educate them that they are taking a loan. As more and more students take credit at an early age, they will understand the value of maintaining their credit scores. And the more it is, more people will trust them. Maybe banks will start giving them a car and a house loan much more easily.
P: At this point are you not planning to enter P2P lending market?
K: P2P is a licenced industry and we don’t have that licence yet. P2P in India, in our understanding, is well regulated. The regulation here gives cap amount per investor which is very much protecting the investors. The regulation limits but it is good in a way which reduces the risk.