Gaurav Hinduja and Sashank Rishyasringa hardly came from the domain they were trying to revolutionise – online lending.

“But we were both excited to come back to India to start a business which did three things – had an impact on the environment for entrepreneurs within the country, leveraged technology to build scale, and create scale on a rapid pace within the organisation,” begins Gaurav.

Before going for an MBA to Stanford, Gaurav was running operations for his family business named Gokaldas Exports, an apparel exports company. Sashank, meanwhile, had been working with Mckinsey for four to five years in New York and the Middle East. But despite that, fintech seemed an exciting sector to the duo for two reasons.

But breaking in was hardly a cakewalk.

The initial challenge the duo faced was that of recognition – at that time fintech and online lending was almost unheard of in India. So when they started Capital Float in 2013 – a lending platform that provides working capital for SMEs – the common reaction they got from VCs and other players in the ecosystem was that online lending will never work for India as SMEs are not typically digitally savvy enough. To add to it, unsecured loans are risky.  There was scepticism about the viability of the model as well.

Also, when it comes to building a fintech startup in India, challenges lie in working with the existing data sources and also aggregating new data sources that are emerging. For eg. in the last year,the Aadhar card has emerged as a very exciting data source. But for the startup, it was definitely a challenge to aggregate and analyse the data from it. Building a highly scalable and cost efficient way of sourcing borrowers across the country remains another challenge.

Then, figuring out the right entry point into the SME segment was another hurdle. SME lending is a massive sector in India and Capital Float got its foot in the door through ecommerce. Says Gaurav,

“This was early 2014, when ecommerce marketplaces had started to take off and we saw there was an opportunity to finance the merchants who were coming on to these marketplaces. That’s when we partnered with a lot of ecommerce majors like Amazon, Snapdeal, and eBay among others and created unique products specific for online sellers. Today also, we take this approach of identifying unique market niches and opportunities for credit.”

While there’s hardly an SME that would not shy of timely credit, Capital Float’s thesis was trying to identify certain segments of SMEs which had credit score and were data-rich.

Says Sashank, “We believed there was a large population of SMEs in India that were unable to get loans from banks but actually had a significant data footprint because of their engagement with the formal economy. This could be data garnered by selling online or Government data like Aadhar or credit data like CIBIL (Credit Information Bureau (India) Limited) score.”

So, by and large, the startup looked at a combination of a few things – the digital footprint of the SMEs which means how much is it transacting on the ecommerce platform, what are the seller’s reviews and rejections on the platform. Then it also looked at the more traditional data in terms of credit bureau scores, bank statements. Thirdly, it scoured more unique data such as social media credit scoring, psychometric customer segment, and others depending on the product it was selling.

Capital Float claims that since the target segment is familiar with technology and has some sort of digital footprint, adoption has been encouraging. Till date, it claims to have disbursed over INR 800 Cr of loans to about 5,000 SMEs and customers across the country. As far as geographical spread is concerned, it reportedly has borrowers in over a 100 cities, with a major proportion in Tier II, III cities.

The Bengaluru-based startup has raised over $42 Mn in funding in its Series A,  Series B, and Seed rounds from the likes of SAIF Partners, Sequoia Capital, Aspada Investment Company, and Creation Investments Capital Management.

Source: inc42