Democratizing Finance: How Faircent wants to reduce interest rates on loans

By Pranbihanga Borpuzari & Ashutosh Bhattacharya

Rajat Gandhi's friend wanted to buy a Royal Enfield motorcycle and found a novel way to raise the money. He posted on Facebook seeking contributions from his friends and family and managed to raise enough to buy the motorcycle. "This got me thinking and I thought can we do it on a scale and build an exchange where friends, family and maybe complete strangers could help each other? People who borrow would save on interest and people who lend would earn additional interest rates," says Faircent CEO and Co-founder, Rajat Gandhi.

Quitting his job Gandhi set out to build Faircent as a platform that could connect individual borrowers with individual lenders and roped in Vinay Mathews.

Watch: My Big Plunge Feat. Faircent




The Company was incorporated in 2013, after nearly one year of development and Faircent.com was finally launched in March, 2014. By being a peer-to-peer (P2P) platform Faircent aims to solve the most important pain point - that of high interest rates for borrowers and low rates of interest for depositors. It lets borrowers borrow at lowest interest rate and for lenders to maximize their returns on investments.

The model works on disintermediation of the banks, by bringing the individual borrower and individual lender directly together. It uses the existing banking eco-system to check, evaluate and recover the credit.

"We are at a very nascent stage - comparable to what ecommerce was in 2001. It is going to take a while for the brand to get established and credibility. Having said that, the marketplace is highly curated and we knock off 90-95 % of borrowers that come to us. We use a lot of technology interventions to ensure we have the right set of borrowers," says Faircent, Co-founder and COO, Vinay Mathews.

Gandhi adds that for the lenders the site ensures they build a portfolio on the platform so that it is not a one-to-one transaction, but a one-to-many. Borrowers, on the other hand, are assessed and categorized according to the risk they present.

The startup has an agreement with TransUnion to leverage its capability in data, analytics and technology in its algorithmic underwriting. Faircent is also the first online P2P lending platform to use TransUnion's Aadhar based eKYC module, which maps potential borrowers on multiple identity points in real time. This greatly reduces the need to for the consumer to submit verifying documents, helping streamline the processes. It also uses US-based Yodlee's services to appraise over 200 data points to evaluate the risk profile of borrowers on its platform, which includes their social data from Linkedin, Facebook; financial data from their bank statements, credit card etc.

The site today does about Rs. 1 crore in lending every month, has 20,000 borrowers and over 5000 lenders. "It's a fairly new and nascent organization. The biggest challenge for Faircent is that we have to accept that there is a lot of cash floating around in the economy. Typically the unorganized sector does not even ask for any documentation, gives money if they like you. So, how do you convert such borrowers into accepting something like a Faircent will be a challenge," says Faircent, Investor and Mentor, Rajagopalan Sundar.

This year the Indian loan market is expected to reach a size of Rs 21,980.6 billion, with a CAGR of 18.7 %. What has attracted users is the fact that, borrowers can save anything between 2-6 percent on the site and for lenders they get more than their fixed deposits or whatever is lying in their bank accounts. "An individual lender can give out a maximum Rs. 7 lakh in loans and an individual borrower can raise a maximum of Rs. 20 lakh. We want to be known as an organization that reduces the cost for borrowers and we will continue the journey," says Mathews.