The people’s bank that LiquiLoans has built
The conference hall in Pune was packed. To retail investors who have long complained about low interest rates, an indicative 10% rate on idle savings seemed like a great deal. The questions came thick and fast after Gautam Adukia, co-founder at peer-to-peer lending platform LiquiLoans, concluded his presentation.
The non-banking finance company founded in 2018 had stitched some early high-profile partnerships with fintech platforms Cred and BharatPe. It is now leaning more towards mutual fund distributors, targeting clients looking to diversify beyond fixed deposits. But where does the 10% rate come from?
The answer is quite surprising: zero-cost EMIs, or equated monthly payments, for consumer loans. These loans are given through merchants such as Dr Batra’s, VLCC, and Upgrad, and the merchant absorbs the interest rate on the loan.
LiquiLoans passes on this interest (net of fees) to the lenders on its platform. The loan is disbursed to the merchant rather than the end-consumer, which cuts the risk of the customer using the money for some other purpose. Since the loans are small (below ₹1 lakh, on average) and low tenor (under 12 months, on average), chances of default are low, Adukia explained.
The default, or non-repayment, rate for LiquiLoans is less than 1%, which has a bearing on the fee earned by the platform. The platform earns a spread (as fees) between the lending rate (10%) that investors get and the borrowing rate (charged to the borrowers) at 18-20%.
The math has worked out well for the company, with no consumer complaints of default the past 5 years.
The market is also large. Adukia estimates it at around ₹50,000 crore, mostly with NBFCs such as Bajaj Finance. LiquiLoans says it offers better terms to
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