Fintechs and payday lenders are aggressively lending to informal economy workers, even as banks and large non-bank finance companies (NBFCs) become more conservative in the space. Fintech lenders have seen demand from food and grocery delivery executives with various app-based platforms jump as much as 40% in the fourth quarter of FY22, industry executives said. The increased demand, in turn, is being fueled by elevated inflation, which is prompting delivery executives to borrow more to bridge cash flow mismatches.
Lenders active in the segment believe that demand stems from an improvement in consumer trends as the pandemic recedes. Bhavin Patel, co-founder and CEO of LenDenClub, said that with an uptick in consumption, the need for delivery executives has grown across industries for various app-based platforms.
Additionally, as the size of the workforce increases, many delivery executives are seeking small loans or advance salary and payday loans to cover their operating expenses. The increase in demand is also due to the orientation of the product to the segment”, said Patel. There isn’t enough data to determine whether a rise in inflation has anything to do with increased demand, according to Patel.
Others, however, take a darker view of the situation. They point out that while fuel and other commodity prices have risen, there has been no concomitant rise in delivery executive salaries. To make matters worse, the increase in 10-minute deliveries has resulted in an increase in traffic violations and fines paid by delivery executives.
A loan for a delivery executive could amount to 30-40% of their monthly income and tenures range from one month to three months. Interest rates range between 18% and 30%. LenDen Club’s Patel says there is little reason to worry about borrowing in the segment, as loans are approved only after reviewing the borrower’s credit bureau data and assessing their ability to repay.
However, concerns about high indebtedness persist. “The money they are borrowing now is essentially a gap fund. By its very nature, it’s prone to high amounts of churn, which means the guy keeps borrowing from new apps to pay off old ones,” an industry executive said on condition of anonymity.
Given the precariousness of temporary workers’ finances, large lenders have recently been reluctant to finance them. Abhishek Agarwal, co-founder and CEO of CreditVidya, said banks and big NBFCS are becoming wary of the segment. “The risk perception of the segment has increased significantly in recent months, given that the cost of living has risen for them without this meaning an increase in their profits. However, some fintechs and payday lenders continue to lend to informal economy workers and the interest rates on such loans are quite high,” Agarwal said.