No More Loan Applications

We have stopped taking loan applications

Why?

When we started taking loan applications from mid-2020, we had a simple objective:

Everybody who needs a loan should get it.

To this end, we approached different banks and NBFCs to create a framework for people to get loans and repay them easily. We had a grand vision of working towards adding a tangible measurable value to assets a small borrower can bring: his thela, his small tea shop, his seat in the village mandi, the number of years earning as a security guard or a handyman, years working as an employee in a small shop or proprietary business, etc.

We were not successful in our discussions but we decided to still try and get people who needed loans get the funds they required.

But being an online website, we only could process digital loans, and these were given out by banks and NBFCs at exorbitant interest rates. In most cases, we told our applicants to go directly to a bank branch near them and negotiate with the bank for lower interest rates – something that was not possible with digital / online loans.

There has also been a rise in a disturbing trend in recent times.

The (1) lack of access to funds due to Covid and its aftermath, (2) the rise of small NBFCs and Buy Now Pay Later organisations, (3) a banking structure that relies on loans and margins for small financial players to sustain themselves, and perhaps most important, (4) the lack of any relevance given to borrowers’ intangible assets such as their thela, small shop, seat in a mandi, years spent as an income earner in an unregulated industry, mean loans being approved to meet sales target numbers.

The last few years has seen bank officers agreeing to loans from borrowers who could not repay the loan at the interest rates they were charged or within the small repayment tenure they were allowed. They either needed a lower interest rate or a longer tenure. But most importantly, they needed support and understanding from the lender.

They got none of these.

The result? Defaults.

There are now record number of defaults in small personal loans. One of every four loans of ₹50,000 or less are witnessing defaults, says the Financial Express. The Economic Times reports a far worse situation for loans under ₹10,000.

Reading this it may seem the fault lies with the NBFCs or the smaller banks or even the larger ones.

But it does not.

The banking system in India has needed a revamp for decades. A customer-first approach with thorough empathetic understanding of the customer segments and the individual borrower is the need of the hour. But a system that plays on margins – the smaller banks and NBFCs charge a higher interest because they need to pay back the larger banks from whom they borrowed and also earn some money to sustain themselves – does not work.

To End

We are a personal finance information initiative. We cannot solve the larger problem that faces Indian personal finance industry.

And so we have decided to not give any hope of getting a loan to any of our valuable readers.

We hope to continue providing you information on loans, investments, earning opportunities, and sometimes even opinion pieces.