"Mr. Swaminathan, this is my 6th visit & I have provided all the documents I have on my business", said Mr. Reddy.
"I know Mr. Reddy but the collateral you don't have three-year profitable history", said Mr. Swaminathan.
"The demand last couple of years was not there, you know it better", said Mr. Reddy.
"Yes but the bank has its policies, and I need to follow them", said Mr. Swaminathan.
So often we hear the above story, and also are used to reconcile to the fact that our business doesn't have the right attributes to receive credit. Well simply put it's a MYTH. A myth propagated by the Credit Institutions across the country whereas the actual reasons are:
Large Credit Institutions follow, what we call Judgemental Analysis to assess the borrowers. This entail going through tons of documents to build comfort, multiple visits to gain mental familiarity and asking for larger collateral so as to cover any risk. All these processes require significant investment from the Credit Institution, as much as Rs. 20,000 - 50,000 and is also very time consuming. For small business loans i.e. Rs. 1 lakh - 10 lakhs, Judgemental Analysis process the Judgemental Analysis cost makes it unprofitable and hence Credit Institutions shy away from it. This has resulted in unmet market need of over Rs 20 lakh crore.
The alternative is what is called Score Card based lending. This entails scoring customer based on their data & thus assessing their credit worthiness. However, given the Cash based nature of Indian economy data on Small Businesses are not readily available. With technology & smart phone now becoming ubiquitous, it is possible to now collect & process multiple data points, at breakneck speed, which the Small Businesses are generating, for e.g. Utility Payments.
At CredRight, our Technology/Software Platform can collect data on over 100 attributes on our Customer and extract meaningful information which can then be used for Lending. The speed of technology helps us approve loan within hours and disburse the loan amount within 3 days. And our trust on this technology is so high that we provide Collateral free small business loan at very competitive price.
So next time when Mr. Swaminathan tells you that they don't have enough information or collateral, let them know it's their inability to change in the modern times.