Startups in student-lending sector see dropouts, but some score too
, ET Bureau|
Updated: Dec 13, 2017, 08.14 AM IST
BENGALURU: In a year that saw Chinese smartphone maker Xiaomi Technologies enter the domestic student-lending sector as an investor, there have also been a few setbacks recently.
Accel Partners-backed Quiklo has just shuttered its lending operations, becoming the second major casualty in the micro-lending space this year after Matrix Partners-backed Finomena stopped lending around July.
Quiklo, founded in 2015 by IIT-Delhi graduates Mrigank Shekhar, Kush Srivastava and Rahul Saxena, offered loans to students for buying high-value items such as phones and laptops, and was looking to lend towards payment of course fees as well. The company offered the loans through partner banks and non-banking financial companies, or NBFCs.
Quiklo, which had raised at least $2 million from Accel and Tracxn Labs, stopped lending some weeks ago and has been focused on collecting repayments, people familiar with the development said. The company was disbursing about Rs 1 crore per month with an average loan size of Rs 25,000, but was unable to scale up in the student segment, these people said, requesting anonymity.
Quiklo cofounder Kush Srivastava said the company has not stopped operations, but did not offer a comment when asked if it had stopped lending. He also did not comment on challenges on scaling up the business.
Finomena, on the other hand, stopped lending because it was unable to raise more funds, according to people aware of the matter. The company, also founded in 2015, had raised an undisclosed amount in seed funding from Matrix Partners and angel investors last year. It had facilitated loans adding up to more than Rs 20 crore, as per industry reports. Finomena’s founders could not be immediately reached for comment.
While lending is risky business, the student segment is among the riskiest, say industry experts.
“You are essentially underwriting their future potential,” said Vivek Belgavi, leader for fintech at PwC India. “The model can only work on volumes but scaling up is difficult given the fragmented nature.”
While in the US, companies such as Sofi and Upstart have developed successful business models out of lending to students and millennials, the space is very new in India and business models are still in the works.
KrazyBee, an NBFC, is doing in education loans what most banks don’t — offering loans for a single semester or tuition fee for a year, or financing a bike if a student moves to another town to study.
“This (student lending) is a new segment opening up in India and the idea is to do responsible lending,” said cofounder Madhusudan E. “Bringing in parents as co-borrowers helps.”
Facilitating ecommerce purchases is the most popular business model for student lending startups, which Quiklo was doing, and there is usually no parent guarantee involved.
Even for KrazyBee, about half of its lending is towards such online purchases by students, without parents as co-borrowers.
SlicePay, another lending startup, offers ‘buy now, pay later’ options to students for buying things online. “We ensure this space is not too risky by basing our model on typically starting customers with smaller limits based on multiple data points and underwriting models,” said CEO Rajan Bajaj. “Then gradually, as we see good behaviour, these limits start to increase.” SlicePay has disbursed more than Rs 5 lakh in loans since starting operations at end of 2015, and Krazy-Bee has given out about Rs 2.5 lakh in loans since May 2016, when it launched operations.
Lending startups bet also on the educational institution a student is enrolled in, job potential based on merit, as well as the student’s social circle and social media behaviour.
So while the risks are high, the companies are betting on the future, literally. “We want to retain these young, educated customers for the next seven to eight years at the least, so even if in the first year we see a high loss rate of as much as 5%, over the next few years, we have 95% prime customers who will not default since their intention to repay has been proven,” Bajaj said. Eventually, the success lies in responsible lending, Madhusudan said.
“The most important part about lending to students is ensuring you give enough education about credit scores and maintaining credit worthiness, and to warn them against starting off with a bad credit score,” he said.
So even while Quiklo has succumbed, the student-lending space evidently holds huge investor interest. In October, KrazyBee picked up $8 million in series-A funding led by Xiaomi and Shunwei Capital, and Slice-Pay raised $2 million from Das Capital from Japan and Simile Ventures from Russia as well as existing investor Blume Ventures.
Other funded companies in this space include GyanDhan, backed by Sundaram Finance; Avanse, which raised capital from International Finance Corporation; and Propelld, which is backed by Startupbootcamp, as per data from Tracxn.
Accel Partners-backed Quiklo has just shuttered its lending operations, becoming the second major casualty in the micro-lending space this year after Matrix Partners-backed Finomena stopped lending around July.
Quiklo, founded in 2015 by IIT-Delhi graduates Mrigank Shekhar, Kush Srivastava and Rahul Saxena, offered loans to students for buying high-value items such as phones and laptops, and was looking to lend towards payment of course fees as well. The company offered the loans through partner banks and non-banking financial companies, or NBFCs.
Quiklo, which had raised at least $2 million from Accel and Tracxn Labs, stopped lending some weeks ago and has been focused on collecting repayments, people familiar with the development said. The company was disbursing about Rs 1 crore per month with an average loan size of Rs 25,000, but was unable to scale up in the student segment, these people said, requesting anonymity.
Quiklo cofounder Kush Srivastava said the company has not stopped operations, but did not offer a comment when asked if it had stopped lending. He also did not comment on challenges on scaling up the business.
Finomena, on the other hand, stopped lending because it was unable to raise more funds, according to people aware of the matter. The company, also founded in 2015, had raised an undisclosed amount in seed funding from Matrix Partners and angel investors last year. It had facilitated loans adding up to more than Rs 20 crore, as per industry reports. Finomena’s founders could not be immediately reached for comment.
While lending is risky business, the student segment is among the riskiest, say industry experts.
“You are essentially underwriting their future potential,” said Vivek Belgavi, leader for fintech at PwC India. “The model can only work on volumes but scaling up is difficult given the fragmented nature.”
While in the US, companies such as Sofi and Upstart have developed successful business models out of lending to students and millennials, the space is very new in India and business models are still in the works.
KrazyBee, an NBFC, is doing in education loans what most banks don’t — offering loans for a single semester or tuition fee for a year, or financing a bike if a student moves to another town to study.
“This (student lending) is a new segment opening up in India and the idea is to do responsible lending,” said cofounder Madhusudan E. “Bringing in parents as co-borrowers helps.”
Facilitating ecommerce purchases is the most popular business model for student lending startups, which Quiklo was doing, and there is usually no parent guarantee involved.
Even for KrazyBee, about half of its lending is towards such online purchases by students, without parents as co-borrowers.
SlicePay, another lending startup, offers ‘buy now, pay later’ options to students for buying things online. “We ensure this space is not too risky by basing our model on typically starting customers with smaller limits based on multiple data points and underwriting models,” said CEO Rajan Bajaj. “Then gradually, as we see good behaviour, these limits start to increase.” SlicePay has disbursed more than Rs 5 lakh in loans since starting operations at end of 2015, and Krazy-Bee has given out about Rs 2.5 lakh in loans since May 2016, when it launched operations.
Lending startups bet also on the educational institution a student is enrolled in, job potential based on merit, as well as the student’s social circle and social media behaviour.
So while the risks are high, the companies are betting on the future, literally. “We want to retain these young, educated customers for the next seven to eight years at the least, so even if in the first year we see a high loss rate of as much as 5%, over the next few years, we have 95% prime customers who will not default since their intention to repay has been proven,” Bajaj said. Eventually, the success lies in responsible lending, Madhusudan said.
“The most important part about lending to students is ensuring you give enough education about credit scores and maintaining credit worthiness, and to warn them against starting off with a bad credit score,” he said.
So even while Quiklo has succumbed, the student-lending space evidently holds huge investor interest. In October, KrazyBee picked up $8 million in series-A funding led by Xiaomi and Shunwei Capital, and Slice-Pay raised $2 million from Das Capital from Japan and Simile Ventures from Russia as well as existing investor Blume Ventures.
Other funded companies in this space include GyanDhan, backed by Sundaram Finance; Avanse, which raised capital from International Finance Corporation; and Propelld, which is backed by Startupbootcamp, as per data from Tracxn.
