In a quest to deal and clarify upon various aspects related to Digital Lending in India, in part-III, we are touching the aspects of choosing Digital Lending Models.
Choose Digital Lending Models
In India, to set up a credit or finance business, whether physical or on a Digital Platform, which is engaged in the business of providing loans and advances (other than banks), it is required to be registered as a Non-Banking Financial Company (“NBFC”) under one of the provided categories depending on the Business Model.
The other way to operate which has its own legal criteria is to have a tie up with a Bank or NBFC and operate as technology platform. In this model, there are certain complexities, which needs to be resolved such as KYC document sharing or approval, ownership of user data, ownership of loan book etc.
There are various categories of NBFC’s which could be opted for depending upon the business model.
1. Peer to Peer Lending (NBFC-P2P)
P2P Lending Platform connects borrowers, whether it is individual or organization with lenders, allowing them quick access to loans at affordable costs. NBFC- P2P usually acts as an intermediary facilitating transactions between these parties via online medium or otherwise. Now as per Section 7 or RBI (NBFC P2P) Direction, 2017, the current transaction limit for a borrower on one platform is INR 50,000 (Fifty Thousand) and across all P2P platforms is INR 10,00,000 (Ten Lakhs) Further, current transaction limit for lenders across all P2P platform is INR 50,00,000 (Fifty Lakhs). Provided, when a lender invests more than INR 10,00,000 (Ten Lakh), on a P2P Lending Platform, he is required to submit a certificate from a practicing Charted Accountant, mentioning he has minimum net-worth of INR 50,00,000 (Fifty Lakh) to that P2P Platform. Further, a single lender should not expose himself to the same borrower for a transaction exceeding INR 50,000 (Fifty Thousand)
Lendbox
Lendbox is one of the leading P2P lending platforms in India which is RBI certified NBFCP2P company. Lendbox provides a platform for borrowers and lenders to transact on mutually acceptable terms. Further, lenders can seamlessly transact with borrowers – sending, receiving and negotiating proposals as well as transferring money via Lendbox’s escrow accounts. Therefore, it is a one-stop shop for all borrowers with varied profiles and needs who can have access to both retail and institutional investors with varying risk appetites.
2. Invoice Financing
Invoice Financing Model is a mechanism, where loan is provided based on the invoice raised by businesses. In this mechanism, the Invoice raised for the customer is sold to the moneylender at a discounted price than the one cited on the bill. In this arrangement, the seller obtains the funds much before the due date of the bill and can invest that amount for the growth of his business. In this mechanism, Investors can be anyone from Individuals, HUFs, HNIs, Financial Institutions and even NRIs (with NRO A/c’s).
KredX
KredX is one of such invoice discounting company, which benefits small businesses procure access to their working capital needs by selling their unpaid invoices and as a result support their business to flourish. Further, in invoice discounting, there is no requirement to have any asset as collateral, as the unpaid invoice represents the collateral.
3. Trade Receivable Discounting System (TreDS)
Trade Receivable Discounting System (TreDS) is a computerized platform and recognized mechanism to bring Micro Small and Medium Enterprises (MSME) vendors, corporate consumers and financiers – both banks and non-bank (NBFC factors), who are the direct partakers, together for enabling uploading, accepting, discounting, trading and clearance of the invoices/bills of MSMEs. In this Mechanism, only MSMEs can be the sellers and Corporates, Government Departments, and any other entity can participate as buyers.
The key purpose of the TreDS platform is to fulfil the financing requirements of MSMEs along with the overdue payments issue. In this mechanism, a vendor who wants to avail finance will upload invoice on the TreDS platform. Once invoice is uploaded, it will go to the buyer for approval. Once, invoice is approved it will become a factoring unit, which will contain all the details about the invoice.
Now, once Factoring unit is created, it will be placed for auction among different financers, where different financiers will place their bid in terms of discounting (finance) rate.
Thereafter, once bid is placed by the financers, the vendor will choose the Financer based on the discounting rate shown by them and once financer is chosen, that financer will provide the money to the vendor via an electronic payment method at the agreed discounted rate and the buyer against whose invoice, finance is raised will pay the amount directly to the financer at the due date.
Invoicemart
Invoicemart is a Trade Receivables Discounting System (TReDS) platform set-up in order to resolve the credit challenges faced by the MSMEs by connecting MSME suppliers and corporate buyers to multiple financiers. It enables sellers to sell their invoices to financiers, thus unlocking working capital quickly.
Receivable Exchange of India Ltd.
(RXIL) Receivables Exchange of India Ltd (RXIL), is a joint venture promoted by Small Industries Development Bank of India (SIDBI), the apex financial institution for promotion and financing of MSMEs in India and National Stock Exchange of India Limited (NSE), the premier stock exchange by facilitating them to auction their trade receivables at competitive market rates through transparent bidding process on the platform by multiple financiers.
Mynd Solutions Pvt. Ltd.
Mynd Solutions Pvt. Ltd is another company instituted under the TReDS platform as ‘M1xchange’ to enable discounting of invoices and Bills of exchange for MSMEs on PAN India basis. The exchange facilitates MSME to lock up their finances by converting their trade receivables into liquid funds, on without recourse basis.
4. Crowd Funding
Crowd Funding Model is a mechanism, which facilitate investees to advance external credit from a large group of investors, through granting investees the ability to display their business details, funding necessity and market potential. Wishberry Wishberry is India’s most successful rewards-based crowdfunding platform that facilitates users to raise funds for their creative and innovative ideas or projects like stand-up comedy, film production, art, dance, design, photography, publishing, theatre etc.
5. PoS lending
Point-of-Sales is a partnership model with financial service lenders, where these players finance online purchases by utilizing together the conventional data like bank statements and the unconventional data like online transaction history.
Mswipe
Mswipe is one of such PoS lending platforms, it is a Wireless swiping machine, which, works with the help of GPRS data networks that are provided by a mobile service provider, and accepts all debit and credit cards. Mswipe collaborates directly with merchants and efficiently links the customers to mainstream financial services and digital commerce.
6. SME Loans
SME Loans Model is a mechanism, which provides business loan, unsecured loans and capital loans to merchants by means of their priority technology platform with minimum documentation and without any collateral.
Capital Float Capital Float, one of the largest digital lenders, offer working capital loans to SMEs operating in manufacturing, trading and services and also finances the online and offline purchases of consumers through various partnerships with A-list brands. It follows Hybrid Co-origination model wherein leading banks and NBFCs collaborate with Capital Float to co-lend to SMEs and Consumers.
7. Consumer Loans
Consumer Loan is a Short Term Lending Model, which provides consumer finance such as payday loans, consumer loans for retail, electronic and travel expenditure etc.
Bajaj Finance
Bajaj Finance is one-stop solution for all post-loan or investment services, which allows Salaried individuals, SME’s and Professional to avail loan services, insurance services, wealth management services etc., and they are allowed to pay back such loan in flexible tenors as per their convenience.
8. Loan on Salary
Loan on Salary is a Digital Lending Model, which provides an instant digital salary advance to all the salaried individuals.Early Salary Early Salary is one of the largest salary advance and instant mobile app, best known for offering the salary advances to young salaried individuals. The company also provides flexible loan amounts on various loan categories – shopping, travel, education etc.
9. Student Loans
Student Loan Model is a mechanism, which allows student to avail Priority Sector Lending services to buy daily goods and services online from various platforms.
Slice Pay
Slice Pay is a Digital Lending Model, which provides card to students through which they can shop at top merchants and pay later with very low EMIs and unlike other credit cards, the SlicePay card does not have a “minimum amount due” option. 10. Pay later loans Pay Later Loan Model is a mechanism, which allows Lenders to avail instant, small- ticket sized loans with the ‘buy now and pay later’ option to meet their purchase needs.
KreditBee
KreditBee is an Instant Personal Loan Platform for self-employed and salaried professionals, where they can apply for Salary Advance upto INR 1,00,000 Lakh as per their requirement. KreditBee hosts multiple non-banking financial companies (NBFCs) who have a license from the Reserve Bank of India (RBI). This includes KrazyBee Services Private Limited and other platform partners.
In part-IV, we shall be dealing with Non Banking Financial Companies and P2P modalities in Digital lending in India.
For any feedback or query, please connect with anand@amlegals.com
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