[Product Roadmap] How Indifi Technologies Used Technology To Disburse Over 35,000 Small Business Loans


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When Alok Mittal was considering starting up, he realized that fintech in the SME and MSME space was grossly underserved.

Alok had found that nearly 85 percent of SMEs and MSMEs did not get any formal credit. Further analysis revealed a whopping $ 397 billion in unsatisfied credit requirements in the segment.

This led him to start Indif in May 2015.

“Given the high quality of talent available in the Indian banking system, we did not believe that MSMEs’ credit access problems were related to bank laziness. On the contrary, expanding this access required discrete innovations in the origination, integration and subscription mechanisms for MSMEs. We also realized that the technology and data availability was reaching a tipping point for the emergence of such an alternative architecture, ”says Alok.

Alok Mittal

Fundamental issues it deals with

Alok and his team discovered that only around 15% of Indian MSMEs have formal access to credit. Upon further study, they found that the main issues inhibiting formal credit growth were –

(a) Lack of data and subscription models

(b) Lack of last mile distribution

(c) High operating costs – NBFCs often incur operating costs of Rs 30,000-40,000 for onboarding and managing a loan of Rs 5 lakh.

Targeting these gaps, Indifi designed an alternative and more scalable model of MSME credit growth.

Since its launch, Indifi’s platform has become the only MSME credit platform with end-to-end process automation, data links with over 100 data partners and supply-side links with over a dozen of loan partners. As a result, it is the only non-mobile MSME platform for sales or credit reporting.

Until now, Indifi a disbursed over 35,000+ loans, amounting to over Rs 3,000 crore, with 80 partners in 650 cities.

Build the products

Micro and small businesses need simple products that fit their business models, Alok says. Long-term standardized loans are proving to be a poor choice of product because they put too much money in the hands of MSMEs without proper follow-up.

Indifi has designed its products to suit the dominant use cases in each industry. As a result, restaurants may need a short-term loan for minor renovations, while retailers may need working capital to accommodate seasonal peaks in activity.

Traditional banks and their loan management systems lack the flexibility to support such a variety of products.

“Our in-house loan origination system and our loan management system capability have enabled us to support such use cases. More recently, this has allowed us to introduce very short-term liquidity products, such as early settlements and purchase finance, ”Alok adds.

Start with a “two pizzas” team

Alok says they started the business with a penchant for an early launch, “which would then accelerate our learning curve.” The team launched the first version of the platform in four months, with a skeletal team of “two pizzas,” he adds.

It was a fully functional platform, although the capabilities were scaled to prioritize the most important assumptions – that the original partners and their customers would be willing and able to absorb a fully digital process.

“Note that before this there was no precedent for MSMEs to use credit in a 100% remote model. Over the next two to three months, we gained a better understanding of client behavior and gained confidence in the viability of our thesis. One of our first lessons, for example, was that customers would be leading the adoption curve against regulations. Therefore, we have decided to provide paper and paper backups to regulatory compliance requirements such as KYC, ”says Alok.

The team also realized that to achieve their vision of digital lending to MSMEs, they would need to engage with the larger ecosystem and advocate for enabling policy actions.

Monitor behavior

Alok notes that they saw a big response when they first launched, and since then they have been in a continuous development and release mode. The initial launch allowed the team to determine the drivers of the product development process. He says,

“For example, we were able to confirm that digital customer behavior was changing rapidly and as a result, we would stay ahead of the trend in capacity building, many times ahead of the market by 12-24 months. We also realized the nodal role we would have to play in bringing our lending partners (banks and NBFC) up on such a digital model – in response to this we acquired our own NBFC which we would use to demonstrate these capabilities to our partners . Third, the diversity of business ecosystems and use cases that we needed to manage led to our focus on building a well-architected loan management backend.

The team built the platform in-house.

Alok says one of the good decisions they made was to have a CTO in the company from day one. They also explicitly driven the culture of having a few great engineers, rather than a big, mediocre team.

“It has become relatively easier to hire and maintain this team with the CTO in place. We’ve kept our development cycles short and nimble to incorporate user feedback. For example, one of the main opportunities we realized was how controlling the flow of funds could act as an important risk mitigation in MSME lending – this concept is already used in business lending, but cost structures have not adapted well to MSMEs. ready. In response to this, we have implemented both end-use monitoring and inbound escrow management capability. Given our partner lender model, we are applying these capabilities for the benefit of one of the lenders using our platform. ”

What works with customers?

Alok adds that most innovations beyond strategic business model choices are the result of fundamental opportunities. For example:

  • Over 85% of Indifi customers are now using electronic documentation – that number was close to zero when they started, and less than 40% just 18 months ago. Achieving such a level of penetration into the MSME space has forced the team to innovate and create multiple pathways, while always looking for solutions that can span across multiple lenders on our platform.
  • In refining the credit models, they realized that the pace of change in credit models tends to be slow, as feedback loops involve loan performance that is achieved over several quarters. “We are perhaps one of the first companies in the world to bypass such learning curves by combining human input with artificial intelligence,” says Alok.
  • As part of the underwriting process, the team drew inspiration from the medical field to create simulators that help our underwriters improve faster, with instant feedback in a simulation environment.

One of the key ideas the team bet behind was the emergence of large business ecosystems – e-commerce marketplaces, food delivery, payment ecosystems, and more. – and how formal credit can be extended using these ecosystems. To this day, Indifi’s core business continues to revolve around this idea.

Likewise, the power of data feedback loops was recognized relatively early on, which allowed our MSME lending models to innovate and move towards the vision of greater lending inclusion, “notes Alok.

The main challenge in creating MSME lending platforms is heterogeneity. Whether it’s in the use cases customers want to support, the nature of business ecosystems and the data they bring, or how banks and NBFCs would like to work with the platform.

The platform thus played a dual role of designing systems to integrate this mix, as well as driving a certain standardization in such an operating model. From a platform perspective, having a loosely coupled agile architecture helped the team innovate and be relevant.

The market and the future

The MSME sector is growing rapidly and its contribution to India’s GDP continues to soar. According to the Confederation of Indian Industry (CII), MSMEs contribute 6.11% of manufacturing GDP, 24.63% of GDP from service activities and 33.4% of Indian manufacturing output.

Despite the huge contribution, the area is considered relaxed. Other segments of the loan segment include LendingKart, NeoGrowth, Vivriti Capital, Shubh Loans, Happy Loans, KhataBook, and OkCredit.

“Our future plans revolve primarily around driving this phenomenon, while continuing to meet the multiple financial needs of our clients. Rapidly evolving public technology infrastructure, such as account aggregators and loan service providers, provide another direction of evolution for our platform. However, beyond these long-term directions, we believe our ability to advance MSME credit inclusion will be driven by our ability to stay close to clients and make hundreds of small innovations quarter to quarter. the other, ”Alok said.

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