Merchants crack QR code to secure loans from NBFCs

ETtech The growth of QR code-led digital payments is boosting unsecured merchant loans by non-bank lenders, bringing hundreds of small businesses into the fold of formal credit at a time when mainstream banks are rather circumspect about expanding uncollateralised loan books. Non-banking finance companies (NBFC) such as Aditya Birla Finance (ABFL), L&T Finance, Poonawala Fincorp, and SMFG India Credit are among those extending credit to small businesses, harnessing the technology backbone offered by payment firms such as BharatPe, Paytm and PhonePe. As sourcing partners for these NBFCs, fintechs are paid a commission for each of these loans that have low delinquency rates due to the practice of daily partial repayments. “Around Rs 1,000-1,500 crore of monthly disbursals get sourced from these payment applications, and non-performing assets (NPA) are very low,” said the founder of a digital payments startup, on the condition of anonymity. One97 Communications-run Paytm has disclosed around Rs 4,500 crore of quarterly disbursal volumes. Other fintech apps could be doing around Rs 3,000 to 4,000 crore in monthly disbursals, said the founder cited above. These small-ticket merchant loans have become money-spinners for fintechs beset with curbs on unsecured consumer lending and a payments platform that remains free. Live Events Also Read: Paytm revenue rises 24%; to focus on merchants, AI, & loyalty: CEO Vijay Shekar Sharma Tied to cash flows NBFCs, too, are drawing comfort from cash flow-based underwriting and daily repayments being processed by these fintech applications. In theory, these are unsecured and risky loans. But daily repayments make it easier for the payment companies to predict defaults, a partner at a venture capital firm said, thereby adding comfort to these NBFCs. “If a merchant has taken a loan and stops using the QR code to process payments for three-four days on the trot, collections agencies can be deployed to ensure repayments,” the investor added. A top executive at an NBFC pointed out that there is a gap in the market unaddressed by banks — at least for now. “Banks have stringent regulations to abide by; so, they are more careful about lending to risky clients, focusing on more organised borrowers and retail,” said the executive cited above. “But they will enter this space very soon, given their focus on QR code merchant payments,” he added. Addressing stock market analysts after its September quarter results, Rakesh Singh, chief executive officer, ABFL, said that more than 55% of ABFL’s portfolio comprises business loans to MSMEs , up 23% year-on-year. Out of this, 82% is secured and 18% is unsecured. ABFL’s current MSME portfolio stands at Rs 77,532 crore. “Disbursements in unsecured business loans grew 37% sequentially,” he had said then. Poonawala Fincorp said it has launched a new line of business — shopkeeper loans — where lending happens at the point of sale. The NBFC issues Rs 1 lakh to Rs 15 lakh in credit for a tenure of six months to four years. Products like gold loans, education loans and shopkeeper loans comprise around 17% of its...

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