Saurabh Gupta | 13 Feb, 2017
Two of India's biggest economic problems faced by small and medium enterprises (SMEs) – one poor credit availability and second high cost of credit, can be solved through technology enabled SME lending marketplace, believes Shailesh Jacob the Founder and Chief Executive Officer (CEO) of Loan Frame.
In an interview to SME Times, he said, "A report by the International Finance Corporation (IFC) analyzed that the total financing demand in the SME sector is of INR 32.5 trillion. So clearly there is a lot of demand for credit that needs to be fulfilled across the country and it will need more than one company or institutions to bridge the gap."
"We believe that through technology, we can solve issues of poor credit availability and high cost of loans faced by SMEs," he added.
Shailesh Jacob is the Founder and Chief Executive Officer (CEO) at LoanFrame.com, India's first SME focused digital lending marketplace. At Loan Frame, Shailesh is responsible for the overall growth strategy of the organization.
Excerpts from the interview...
Please tell something about Loan Frame.
Shailesh Jacob: Loan Frame is a Fintech company focused on the borrowing needs of India's SMEs, who are the backbone of India's economy. We aspire to be the country's largest technology enabled SME lending marketplace. We believe that through technology, we can solve two of India's biggest economic problems faced by SMEs – poor credit availability and high cost of loans.
Please tell us about your products and charges.
Shailesh Jacob: SME business ecosystem in India is such that standardized solutions do not work. A lender has to innovate and adapt according to the businesses requirements and create products that are the right fit and disbursed in a right manner.
Loan Frame has a current product portfolio of 50, which is increasing rapidly. We have a lending solution to meet almost every demand across a variety of sectors including retail, manufacturing, pharmaceuticals, IT, services and health, FMCG. In comparison, most of our competition can offer at the most 2 or 3 off-the-shelf type products.
For Loan Frame the product should help solve the needs of business and this is paramount. We make every effort to keep our charges low and wherever possible we tend to charge the lender instead of borrower.
How it works? Do we know the flow of money?
Shailesh Jacob: Loan Frame is a market place and that's our business model. We strive to provide an efficient lending experience for borrowers and bring them together on a common platform with the lenders. The eco system available for borrowers includes an application, proprietary core system, third party tools, machine algorithm and back end integration with lenders.
All of this is helps us decongest the traditional model of Originate > Access > Validate > Match > Disburse. Traditionally what would have taken 6-7 days is now done in 2-3 days; moreover in a transparent and efficient manner. Our collaborations with all the major banks and NBFCs is meant to ensure proper matching rather than making Loan Frame an intermediary for the fund flow – so the monies go from the lenders to SMEs directly. It however travels that distance a lot more quickly because of us.
The great majority of MSMEs are unorganized and are a subset of the larger informal sector. How one can reach to you? What are the requirements, procedure and time duration of loan process?
Shailesh Jacob: Borrowers can apply for a loan by logging onto Loan Frame's website or by downloading the Android app. The company does detailed assessments of the borrower's needs and then provides the right solutions for the SMEs, at the most competitive interest rates. One way in which Loan Frame distinguishes itself from any other marketplace models is through its technology and in depth credit knowledge.
Though our technology backbone is amongst the best in the industry, we are about a lot more than technology. Loan Frame provides the right loan counselling to its customers. This ensures that all the customers get personalized advice specific to their funding requirements and financial positioning. Lenders also feel very comfortable looking at applications that have been assessed by our technology and team.
Talking about the process, we seek the minimal documentation for loan approval. An entrepreneur wanting to avail funds need to showcase 2 years of business stability. An ITR of 2 years with P/L Statement and 6 months' Bank Statement is required for application of loans.
How is your platform the most sophisticated and trusted next generation small business lending platform in India?
Shailesh Jacob: Loan Frame platform is similar to the one used across all high-end financial institutions in the West. The technology is best in class and is backed by the skills of people who have spent their lives establishing similar systems elsewhere.
We ensure that the user's privacy and data remain sacrosanct when they exist on our servers through built in security measures. As India goes mobile and social, we realized that for every business, going digital is an imperative. We have therefore kept the entire business process online which enhances convenience for the users, who can access funds from anywhere.
Your company's main focus is small and medium enterprise (SME), Why?
Shailesh Jacob: Indian economic progress can be accelerated by developing SMEs. Today they employ over 100 million people and contribute as much as 9% to the Indian GDP. Considering this, the fact that as many as 90% of these institutions don't have access to institutional credit is a matter of grave concern. The even greater concern is that this is not because of any dearth of credit but because there exists a huge amount of institutional apathy when it comes to lending to this segment.
Even when credit is made available it is usually against security. We believe that every enterprise has diverse needs and the products should be made to suit the business rather than the other way around. This is an INR 32.5 trillion opportunity that can be a catalyst for India's economic progress.
There are too many banks and financial institutions in India that have products for SMEs and now the government too is taking care of the issue of credit in SME sector via MUDRA. Why you?
Shailesh Jacob: A November 2012 report by the International Finance Corporation (IFC) analyzed that the total financing demand in the SME sector is of INR 32.5 trillion. So clearly there is a lot of demand for credit that needs to be fulfilled across the country and it will need more than one company or institutions to bridge the gap.
Government initiative by way of MUDRA is definitely a welcome step. We believe it will help in expansion of credit base which can only be positive for the economy. What differentiates us is that besides addressing the problem of credit, we also address the problem of providing the RIGHT credit to a business. When a business does not need secure loans, they should not force to keep their house or business as a collateral.
Traditional lenders usually prefer collateral based lending and look for at least three years of profitability track records. Even after all this they charge a very high interest rate.
At Loan Frame, we are committed to SME financing with our digital approach, which makes the whole process quick and tailor made. We are not focused on a particular type of loan. We target the market at large providing secured and unsecured credit starting from a few lakhs to INR 50 crores.
How government is doing in the segment? Your views.
Shailesh Jacob: We are greatly appreciative of the Government's efforts towards increasing SME funding. The RBI is also focused on bringing down interest rates and ensuring that lenders pass on the benefits of rate cuts to borrowers. We believe that at Loan Frame we are able to participate in this process by increasing transparency for borrowers by analyzing their financial position, matching their needs across a large set of lenders, and choosing the most appropriate source at the lowest rate of interest.
The Finance Minister has doubled the lending target under MUDRA from the 2015-16 target. How you see this? Will this lead to any negative impact on your venture?
Shailesh Jacob: We do not see any negative impact of doubling the lending targets on our turnover. In fact we believe it will increase demand for our services as lenders look to meet these targets and we are a platform that enables them to meet these targets.
MUDRA is welcome, it helps spread awareness and credit to more number of people.
What are your future plans?
Shailesh Jacob: Loan Frame is much more than an intermediary. We are looking to bring about a behavioral change that encourages people to look beyond banks and NBFCs for their credit requirements. We aspire to reach thousands of business and for this, we are expanding our Corporate Partner Program wherein we can partner with the corporates to meet the financing needs of their vendors, dealers, distributors, merchants and other ecosystem participants.
Loan Frame also has a Business Partner Program, wherein we partner with CAs, Company Secretaries, Wealth Managers, and small financial advisory firms to help them meet the borrowing requirements of their clients.