Get full access to one story every week, and to summaries of all other stories. Just create a free account

Unconventionally traditional may seem like an oxymoron, but it fits Five Star Finance. There’s no better way to describe the Chennai-based non-banking financial company (NBFC). It has all the old-school trappings of a lender. From brick and mortar branches to 2,000 feet on the street that disburse Rs 3-4 lakh ($4,250 – $5,700) loans to small businesses. The unconventional part? Despite the relatively small loan sizes, Five Star still goes through the painstaking ordeal of taking property as collateral.

A collateral-based model for such small-sized loans flies in the face of fintech logic. New age lenders like Capital Float and Lendingkart give similar businesses loans—even up to Rs 50 lakh ($70,900)—without the need for collateral. This sort of convenience has helped them grow at 150% year-on-year. The belief is that fintechs—unfettered by branches, collateral, hordes of employees to determine creditworthiness, and by using algorithms to underwrite loans, can achieve far greater scale. Which is why investors have made a beeline for companies like Lendingkart and Capital Float.

Five Star once looked set to fall in the heap of also-rans—the majority of India’s 11,000-plus NBFCs with loan books of less than Rs 1 crore ($142,000), it has seen an astonishing rise over the last 15 years.  

For the first twenty-odd years of its existence, it had a loan book of less than Rs 1 crore. This was cranked up to Rs 100 crore ($14.1 million) over the following eight years. And then, an explosion. In the next seven years, it grew 20X. Despite its cumbersome model.

Its success has also drawn in some serious investment. Morgan Stanley put in Rs 114 crore ($16.1 million) in 2016. Then, in July 2018, global alternative asset firm TPG led a $100 million investment round in Five Star. This was TPG’s first punt on a medium-sized NBFC, pumping in around Rs 425 crore ($60 million). Their earlier investments were in Shriram Group and Janalakshmi Financial Services, both of which had a loan book of over Rs 10,000 crore ($1.4 billion). All told, Five Star has raised a total of Rs 1,000 crore.

NBFCs as a sector have had a great run by taking credit where banks couldn’t go. The bigger NBFCs have grown at 25% for the last five years, with smaller ones growing as much as 30-40%. But the liquidity crisis brought on by the fall of infrastructure lender IL&FS has hurt microlending and brought uncertainty to the sector. “A lot of NBFCs will get consolidated or be marginalised as there is still some real danger of some large NBFCs going under,” says Nidesh Jain, an analyst at investment bank Investec. Five Star, armed with its funding war chest, won’t be one.

Instead, this PE money is set to be the match that lights Five Star’s rocket fuel. It is expecting to disburse a total of Rs 2,100 crore ($298 million) by the end of March 2019.

AUTHOR

Arundhati Ramanathan

Arundhati is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She writes the newsletter Ka-Ching! every Monday. She lives in Bengaluru and has spent over 12 years reporting and writing on various subjects.

View Full Profile

Subscribe to read this story

The Ken is the only business subscription you need. Questions?

 

Premium

  • 5 original and reported longform business stories every week
  • Access to ONLY India edition
  • Close to 250 exclusive stories every year
  • Full access to over 6 years of paywalled stories
  • Pick up to 5 premium subscriber newsletters
  • 4 original and reported longform business stories each week
  • Access to ONLY Southeast Asia edition
  • Close to 200 exclusive stories every year
  • Full access to all paywalled stories since March 2020
  • Pick up to 5 premium subscriber newsletters

Rs. 2,750 /year

$ 120 /year

India Edition
Subscribe Subscribe
Most Asked For

Borderless

  • 8 original and reported longform business stories each week
  • Access to both India and Southeast Asia editions
  • Close to 400 exclusive stories every year
  • Full access to over 6 years of paywalled stories across India and Southeast Asia
  • Unlimited access to all premium subscriber newsletters
  • Visual Stories

Rs. 4,200 /year

Subscribe
 

Echelon

  • 8 original and reported longform business stories each week
  • Access to both India and Southeast Asia editions
  • Close to 400 exclusive stories every year
  • Full access to over 6 years of paywalled stories across India and Southeast Asia
  • Unlimited access to all premium subscriber newsletters
  • Visual Stories
  • Bonus annual gift subscription
  • Priority access to all new products and features

Rs. 8,474 /year

Subscribe
Or

Questions?

What kind of subscription plans do you offer?

We have three types of subscriptions
- Premium which gives you access to either the India or the Southeast Asia edition.
- Borderless which gives you complete access to The Ken across both editions
- Echelon which gives you complete access to The Ken across both editions along with a bonus gift subscription

What do I get if I subscribe?

The Premium edition gives you access to stories in that edition along with any five subscriber-only newsletters of your choice.

The Borderless and Echelon subscription gives you complete access to The Ken across editions and unlimited access to as many newsletters as you like.

What topics do you usually write about?

We publish sharp, original and reported stories on technology, business and healthcare. Our stories are forward-looking, analytical and directional — supported by data, visualisations and infographics. We use language and narrative that is accessible to even lay readers. And we optimise for quality over quantity, every single time.

Our specialised subscriber-only newsletters are written by our expert, award-winning journalists and cover a range of topics across finance, retail, clean energy, cryptocurrency, ed-tech and many more.

How many newsletters do you have?

We are constantly adding specialised subscriber-only newsletters all the time. All of these are written by our team of award-winning journalists on a specialised topic.

You can see the list of newsletters that we publish over here.

Does a Premium subscription to your Indian edition get me access to the Southeast Asia edition? Or vice-versa?

Afraid not. Each edition is separate with its own subscription plan. The India edition publishes stories focused on India. The Southeast Asia edition is focused on Southeast Asia. We may occasionally cross-publish stories from one edition to the other.

We recommend the Borderless or the Echelon Plan which will give you access to stories across both editions.

Do you have a mobile app?

Yes! We have a top-rated mobile app on both iOS and Android which allows you to read on-the-go and has some amazing features like the ability to bookmark stories, save on your device, dark mode, and much more. It’s really the best way to read The Ken.

Is there a free trial?

You can sign up for a free account to experience The Ken and understand our products better. We’ll send you some free stories and newsletters occasionally, and you can access our archive of previously published free stories. You can stay on the free account as long as you’d like.

The vast majority of our stories, articles and newsletters can be accessed only by a paid subscription.

Do you offer any discounts?

Sorry, no. Our journalism is funded completely by our subscribers. We believe that quality journalism comes at a price, and readers trust and pay us so that we can remain independent.

Do you offer refunds?

No. We allow you to sample our journalism for free before signing up, and after you do, we stand by its quality. But we do not offer refunds.

I am facing some trouble purchasing a subscription. What can I do?

Just write to us at [email protected] with details. We’ll help you out.

I have a few more questions. How can I reach out to you?

Sure. Just email us at [email protected] or follow us on Twitter.