Alternative lending firms are raising capital to drive business growth
Alternative lending startups are making their way into the global banking industry. The ability to leverage technology and offer more seamless and efficient lending services to consumers and MSMEs that are underserved is allowing alternative lending firms to penetrate the market and find success. Notably, the growth of these players, especially in markets where access to credit is lagging among consumers and MSMEs, is posing a major threat to incumbent banks.
To further accelerate their growth and boost their loan books, alternative lending platforms around the world are raising investment from venture capital and private equity firms. For instance,
- Money View, an India-based digital lending startup, is reportedly in talks to raise US$150 million in a new Series E investment round, at a post-money valuation of more than US$1 billion. Notably, the firm also raised US$75 million in its Series D funding round at a valuation of US$625 million in March 2022. Tiger Global, Evolvence India, Winter Capital, and Accel were among the investors that participated in the Series D round. For FY 22, the startup has claimed to have an annualized revenue run rate of INR 6 billion. Currently, the firm offers several different products, including instant personal loans, cards, and BNPL services. The Series E funding round will assist the firm in further accelerating its growth in the Indian market where demand for credit is growing significantly.
- In Indonesia, JULO, a digital lending firm, announced that the firm raised US$80 million in debt and equity round, which was led by Credit Saison. A growing number of Indonesians are using the digital lending platform to support their financial lives. Notably, 72% of the loans are utilized for home renovation, business capital, and education. In 2021, the funds disbursed by the firm increased by three times, and in 2022, the firm is targeting a growth of five times. Notably, the firm is planning to use the capital in a two-pronged approach. While US$30 million will go towards product development, customer acquisition, and marketing, US$50 million is reserved for driving the growth of its loan book.
Along with B2C lending firms, startups operating in the B2B segment are also raising funding rounds to drive credit access among MSMEs that are finding it difficult to access credit from formal banking institutions. For instance,
- In September 2022, Numida, an Uganda-based digital lender, announced that the firm had raised US$12.3 million in pre-Series A debt and equity round, which was led by Serena Ventures. Notably, the firm offers capital to MSMEs, which make up 90% of the businesses in the African continent. With these businesses struggling to get capital from traditional banks due to the lack of collateral type accepted by banks, the growth potential for digital lending players is huge in the region. Over the next 18 months, the firm is planning to double its client base to 40,000 and is also planning to expand into other African markets.
- The firm has built its own credit scoring model, which includes MSME sector and cash flow details. While repeat clients get their loans approved immediately, new customers must wait for 24 hours. Since its seed funding round in 2021, the firm has recorded a growth of 7.5 times due to the surge in demand for quick loans. Furthermore, it has issued US$20 million in working capital for MSMEs and has transitioned from issuing US$250,000 a month to US$2 million in a short period. Currently, the firm is offering loans in the range of US$100 to US$5,000. The amount is payable over a month and attracts interest rates ranging from 10% to 16%.
In India as well, the B2B alternative lending segment is gaining increasing momentum, which has resulted in startups raising funding rounds. For instance,
- In June 2022, Progcap, the B2B lending platform, announced that the firm had raised US$40 million in a Series C funding round, which was led by Sequoia Capital, Tiger Global Management, and Creation Investments. The June 2022 funding round valued the firm at US$600 million. The firm is currently planning for product expansion and to tap into new industry verticals such as manufacturing, electrical, and electronics.
- As of June 2022, the firm has facilitated INR 65 billion in credit and has served more than 700,000 SMEs in the country. With an annualized disbursal of US$1 billion, the firm recorded a growth of 4 times year on year. Going forward, the firm plans to expand its operations beyond India and is also looking to acquire software providers from the short to medium-term perspective.
With rising inflation and interest rates, the demand for working capital is expected to further increase among MSMEs around the world. Consequently, alternative lending players are projected to record strong growth in loan disbursals from the short to medium-term perspective. This will keep driving the growth of the industry and the sector will further attract venture capital dollars over the next three to four years.