Job losses and salary cuts due to the national lockdown has left India's working class strapped of ready money. As the new month starts, people are struggling to pay their EMIs, rent and other bills. They are looking for small loans of Rs 20,000 to Rs 50,000 for a short term, as financial start-ups have seen a spurt in such loans.
Take Anita Sharma (name changed), who works in a call centre in Delhi and earns around Rs 20,000 per month. The call centre is shut and she hasn't got last month's salary. She doesn't want to ask her family back home in Jhansi for help. She just needs about Rs 15,000 right now--Rs 8,000 to pay her room rent and another Rs 7,000 to pay other bills and buy food. "While I was requesting money from my friends, one of them suggested I can get a loan from a lending start-up with not much paper work," she says.
Micro loans are neither a priority of NBFCs (non-banking finance companies) nor banks. Most of them have also halted the lending process temporarily due to the moratorium on EMIs. But what has come to rescue of people like Anita are lending startups like HAPPY. "We have been interacting with 300 of our customers and 95% wanted financial assistance in these tough times," says Manish Khera, founder and CEO of HAPPY, a startup that lends money at 2.5 per cent interest rate. These could be small businesses, store owners or individuals.
MoneyTap, another lending start-up, has witnessed similar demand. "We provide a credit line of up to Rs 5 lakh which requires one-time approval - existing customers can borrow from their credit line on the app from the safety of their home. Customer can borrow as low as Rs 3,000 from our platform, the average size that we are witnessing is around Rs 33,000.” says Anuj Kacker, COO and co-founder of MoneyTap. It is a Bengaluru-based startup which disrupted the digital lending business by offering a line of credit for consumers in partnership with RBL Bank and it got an NBFC license last year. It lends money starting at an interest rate of 13 per cent per annum.
India currently has over 450 alternative lending startups that charge a rate of interest of 2.5 per cent per month to five per cent per month depending upon the loan structure and revenue model of the start-up. These startups don’t ask for heavy documentation like banks and NBFCs. One generally has to give an identity and residential documents as proof. The money can be returned through EMIs or one-time payment as it suits an individual.
Online loans by these lending startups are treated just like any other loan from banks and NBFCs. The same rules apply and defaults have a negative impact on future borrowing. Failing to pay continuously for two quarters will make the lender to write off a customer's account and his or her credit score goes down. Before borrowing, it is advisable to look at the rating of the start-up, go through the terms and conditions carefully to spot hidden costs and chose a loan that suits one with the present circumstances in mind.