It’s little surprise that CapitalG, the venture capital fund of search giant Google’s parent company Alphabet Inc, makes tech bets. The late-stage growth VC’s first investment in India was in Freshworks in 2015, a company born in the cloud. Then it invested in Practo, an online healthcare platform, CommonFloor, a real estate platform. And then car portal CarDekho. Companies that believed in an online model for the lifecycle of their product or service.

And then it made a puzzling call with its first fintech investment in 2018 in India.

It was in a little-known lending company—Aye Finance. Aye is a non-banking financial company that believes in the age-old practice of setting up brick and mortar branches. Aye takes 14 days to disburse loans and does not rely on tech for acquiring users. All this, even as its fintech lending brethren reach out to users, underwrite, disburse, and collect loans online.

For a cutting-edge digital VC with a focus on tech-first businesses—all 34 of its investments globally are tech or tech-enabled—the Aye investment is as counter-intuitive as it gets.

This is the fintech world’s equivalent of e-commerce giant Amazon buying grocery retailer Whole Foods. First, it puzzled people. But it was soon followed by a light bulb moment for the rest of the industry. The idea of on an online retailer buying an offline retailer suddenly seemed like the most natural thing to happen.

Fintech lending in India has thus far been mostly about digital lending. They are expected to disburse about $2 billion this year, a mere drop in the credit ocean. But companies come up with new business models as if they were creating a Subway sandwich. Pick the base—a target segment, then choose the loan ticket size, the next layer is the tenure of loans and type of lending product like a term loan, merchant cash advance, payday loans and the like, then choose whether you like your loans secured or unsecured. The sheer variety of what you can build using these ingredients is endless. And given the insatiable hunger for credit—most pronounced among micro-enterprises—you also have the perfect coming together of product and market.

These conditions have seen the mushrooming of over 300 fintechs, which have raised $1 billion in the last five years, according to Tracxn, a startup database monitor. But not all of these lending companies are healthy. Many fintech lenders have built online models that focus on acquiring users digitally, as well as disbursing and collecting loans digitally. This tech-led model has surged in popularity thanks to its scope for enormous scale and pace of growth.

But a consensus is slowly forming that tech-driven pace of growth is overrated. Instead, quality of credit is the holy grail in fintech lending. Zouk Loans, for instance, which lent to SMEs, shut shop in 2016.


Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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