Subprime Loans For Home Credit Gambling In India

“We have given up on trying to decode what Home Credit does,” said the founder of a company that helps non-bank lenders raise funds.

To be fair, there is nothing traditional about the way the eight-year-old Czech Republic-based Non-Bank Financial Corporation (NBFC) has built its lending business in India. Home Credit, who arrived in India in 2012, has lent money to nearly 10 million Indians since. Except that none of them would be served by risk averse banks or riskier fintechs.

The NBFC has loaned to those with a ‘CIBIL score’ below 600, as opposed to a good borrower with a score of 750 to 900. (A CIBIL score is a three-digit digital summary of their credit history). Transunion CIBIL, the largest credit bureau in the country, calls a score below 680 “subprime”. For banks, risk borrowers are the bottom of the barrel.

India has no shortage of borrowers. But lending to those who have never borrowed or have an unclear credit history is no joke. Companies have struggled to find the right business model to lend to this segment.

The Home Credit model is anathema to non-bank lenders in India. Here’s why:

  • It offers 0% interest rate to people looking to buy cell phones as cheap as Rs 10,000 ($ 139). Low cost loans come with too thin margins for most businesses.
  • It charges an average interest rate of 30% going up to 55% compared to the industry average 15-26% for personal loans.
  • It has 8% gross non-performing assets, far more than the industry average of 3-5% non-repaying assets on time.

Also, Home Credit goes where even most online lenders wouldn’t, with the exception of Early Salary and KrazyBee payday lenders. “We would never lend to consumers below a score of 650,” said the founder of a consumer loan company, on condition of anonymity because he did not want to comment on competitors.

Despite this, the Czech company has built up a loan portfolio of Rs 8,200 crore ($ 1.1 billion) in India. In the fiscal year which ended in March 2019, it returned to profitability after eight years of losses. It also generated interest income of Rs 2,109 crore ($ 293 million) and profit of Rs 351 crore ($ 48.7 million). The previous year it showed a loss of Rs 327 crore ($ 45.4 million).

Of India’s 10 million home credit borrowers, 55% have no credit history, said Marko Carevic, marketing director of Home Credit India. The rest, he says, are those with credit histories. But most of them have a history of defaulting or late repayment of a loan. If their loan doesn’t go south, the business might end up finding a conscientious borrower.

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