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India’s New Credit Rails

India is starved of affordable, formal credit. Only 11 % of the 60 million MSMEs* have access to capital from organised lenders today. This under-penetration has shackled our economic growth and economic woes of our growth drivers, the MSMEs has only worsened in wake of the current pandemic.

There is a massive market opportunity to be tapped here that has been inhibited because the current rails for flow of capital to the untapped market are broken. 

They are broken for the lenders, to be able to reach out to these prospective borrowers. Few of the many reasons include high cost of borrower acquisition and time consuming custom third party tie-ups with loan originators.

They are broken for the marketplaces to connect their customers with lenders. The custom integrations and manual processes are costly and time consuming. The Turnaround Time to get loans deposited to customers is high and their ability to provide custom financial products quickly is restricted, owing to implementation challenges.

These broken rails needed to be fixed and the solution must solve the problem at scale.

The fix for this is a ‘Fixed Line to Mobile Telephony’ moment for ‘Credit Borrower’.

In a complete re-imagination of the credit rails, we recently witnessed a loan disbursement :

  • Instantly in borrower’s bank account
  • From application to disbursement in less than 5 minutes, with no human decisioning involved!

The next chapter in the story of ‘India Stack’ that brought this to life is the new ‘Open Credit Enablement Network’. It is a common language for lenders and marketplaces to utilise and create innovative, financial credit products at scale.

In this new credit paradigm, the marketplaces/aggregators using these APIs to embed credit offerings in their applications are called ‘Loan Service Providers’ (LSPs).

  • How are these ‘Loan Service Providers’ playing a vital role in democratizing access to credit? 
  • How are they enabling more choices, better credit products and lower interest rates for their customers?
  • Why are they exuberant about this new ‘Plug and Play’ architecture and what does it mean for their core business and driving additional revenue?
  • What do they mean when they say ‘every marketplace will now become a Fintech company’?

Some of the top lenders in the country such as State Bank of India, HDFC Bank, ICICI Bank, IDFC First Bank, Axis Bank and Bajaj Finserv have come onboard and will soon be in a state of readiness to usher in this new credit paradigm.

Just as UPI presented an opportunity for massive companies to be built and delightful customer experiences to be created, we are excited to see entrepreneurs capitalise on this massive opportunity.

We are excited to share with you :

  1. Answers to all the questions above
  2. A product demo depicting the ‘5-minute digital credit journey’ 
  3. Introduction to ‘Open Credit Enablement Network’

When: 5 pm to 6:30 pm, IST on Friday, 24th July

Where: Online virtual session on Zoom. Webinar details will be shared with the registered participants. 

To confirm your participation and receive the virtual link, please click here: https://bit.ly/LSPOpenHouse1 (same form has been embedded below)

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Recommended Reading :

Chapter 7 and 8 in RBI UK Sinha MSME committee report: https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=924

Introduction to India Stack’s fourth layer – Data Empowerment & Protection Architecture: https://www.youtube.com/watch?v=mW__azI8_ow

*Source – Ujjivan small finance Bank RHP & UK Sinha RBI MSME Committee Report

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India to transform into a software product nation

The Finance Minister’s recognition of software products as a distinctive category which can propel India forward as a product nation could well mark a new era in India’s industrial development.

At the time of independence, we had very limited industrial capabilities. But, in the last 67 years, we have built a strong foundation across industries ranging from tractors to telecommunications, and dairy to drugs. Yet, we fall short of getting global recognition because we lack enough widely visible products and brands.

And, software products could well be the arena to change this image. We have companies that have shown they have what it takes to be global leaders – InMobi challenges Google in mobile advertising, and Fusion Charts is a preferred source for visualization tools. India’s software services industry has helped develop a huge talent pool that can write the most complex software.

In addition, today’s youngsters have the aspiration, ambition and confidence to build sophisticated and powerful products.

Sales and distribution is no longer a problem because the internet allows you to serve a global market. The missing link to creating the next Facebook or Google from India is a supportive ecosystem that promotes rapid growth.

Identification of software products as a category distinctive from services should help us overcome some of the barriers to creation of this ecosystem.

Multiple levels of taxation, difficulties in availing R&D tax credits, and barriers to venture capital investment are some of the issues that can be sorted out now that the potential of software products has been recognized.

The significance of software products goes well beyond their potential contribution to Brand India.

Well-designed software products that combine the special needs of Indian customers with the right technology have the potential to transform the productivity of India’s large MSMEs (Micro, Small and Medium Enterprises) sector across industries.

Just one such product, Tally, has made accounting easy for millions of Indian enterprises.

Software products can provide platforms for improvement in government functioning and effectiveness whether it be the issue of birth certificates or facilitating financial inclusion. They can help provide better healthcare and education.

The most sophisticated defence and aerospace products have software at their heart, so software product capabilities could in the long run help our security and defence as well.

Success in software products could help promote product thinking in other industries as well. The advantage of focusing on software products first is that unlike many other product categories (like drugs or semiconductors), the upfront investments are much more manageable, and we already have the talent base and skills to get going.

Why is product thinking crucial? Because it makes possible the capture of value within our country. According to one estimate, Apple earns $368 out of every $560 iPhone. In contrast, Foxcon’s margin on every iPhone that it manufactures for Apple is less than $15. We need to change from “India Inside” to “India: Product Nation” so that we can appropriate a significant part of the value created by our talented designers, engineers and scientists.

The Vajpayee government is often given credit for removing the barriers to the growth of the software services industry through policy changes it made in the late 1990s. If the Modi government takes today’s announcement to its logical conclusion, it could be on to something much bigger – positioning India for success in the trillion dollar software product industry.

100,000+product start-ups, employment for 3.5 million technical people and more than $500 billion in market value are some of the results we can expect in the next ten years. But the biggest prize would be the spillover effects of unleashing India as a product nation.

Cross Post from BusinessToday