Now is the perfect time to expand into India, Rohit Arora believes.
Mr. Arora is the cofounder and CEO of Biz2Credit, America’s leading online small business marketplace. So far they have arranged more than $1.4 billion in financing for thousands of small businesses.
Mr. Arora said Biz2Credit is in the early stages of launching a platform in India. They are negotiating partnerships with the country’s largest non-bank financing groups.
The time is right to expand into India, Mr. Arora explained.
“India is now going digital very quickly, at a rate placing them third after the United States and China. They are also the second largest market for smart phones after China and they’re on pace to be the largest within five years.”
Taken together those factors provide fertile ground for digital financing, Mr Arora added. More than 29 million small and medium businesses are active in India and together they need $300 billion in financing every year.
Technology often grows faster than the societies in which it operates and India is no exception, Mr. Arora said. They lack good data credit models and their credit bureaus are young.
Three positive trends will help India quickly adapt, Mr. Arora said.
The government is taking deliberate steps to digitally acclimatize the population, including making it mandatory to file taxes online. Virtually all citizens (95 percent) file their taxes electronically. That lessens the cost of data interpretation and verification.
Bankruptcy laws were recently streamlined to make them more business friendly. Banks now recover money much faster.
“That increases confidence,” Mr. Arora said.
Rapid digitization is the final reason. That has spawned entire industries in need of capital.
There are obstacles, Mr. Arora said. India’s internet speeds are slow. Interest rates are high, and the lack of quality data hampers the growth of the credit industry as a whole.
In some respects, the trouble surrounding Lending Club’s recent woes were unavoidable given their business model, Mr. Arora said. Prior to their downturn, Lending Club enjoyed healthy growth thanks to strong originations.
That would have been the time to ensure their underwriting infrastructure was optimal, which is advisable for all market conditions, but especially for the inevitable market downturn. Collection and servicing systems could also have been improved.
But Lending Club failed to do that, Mr. Arora said.
“So much was spent on originations and not as much on internal risk controls.
“Their only yardstick of success was originations.”
Instead of being solely focused on growth a better tactic would have been to improve all of the internal controls. It would likely have resulted in fewer credit bets overall but the ones made would have been less risky.
Main Street has fared pretty well over the past five years, Mr. Arora said. A default spike will test everyone’s internal systems. Some will survive and some won’t.
Those who do will be part of a healthier industry, one that welcomes increased regulation and which will benefit from credible secondary markets.
“We’re already seeing flight to quality small business lending sites,” Mr. Arora said.
Healthier companies will meet better educated investors, because the mad rush into the industry is over and the ones still interested are paying much closer attention.
“Companies focused on disciplined growth and the right origination channel will see their disciple and foresightedness rewarded at the end of the day,” Mr. Arora said. “Long-term sustainability matters. A company’s management team has to decide whether they’re in this to make a quick buck or if they want to build a sustainable business.”
While we may not know exactly how the online SMB lending industry will look in a few years, the industry will be around as investor interest, SMB need, and bank interest in digitized loans are all strong.
“It’s a safer time to get in for established players. They can do more as there’s fear on the street.”