In his speech at “The conference on creating synergies for seamless credit flow and economic-growth” on 19th Nov 2021, PM Modi touched upon a variety of topics including urging banks to participate in building the nations balance sheet besides their own and also backed them to adopt 100% digital transaction. The key underlying theme was the power the Indian banking sector has to fuel India’s economy and spawn growth & employment.
This simple thought - “Don’t wait for customers to come to the bank, you have to go to them.”, proposed by the PM in 2021, is what Rupeek has been doing since 2015.
Rupeek–
Their tool of choice – Gold Loans. An ingenious, yet uniquely Indian asset class perfect for Modi’s problem statement.
Gold is considered India’s universal asset with 98.7% of Indian households investing in it. On average, an Indian household, holds 100 grams of gold worth US$7K, resulting in a massive US$2 trillion worth of gold stored at home or in bank lockers primarily in the form of jewelry.
Being highly liquid and universally acceptable, gold forms the perfect collateral for credit. Lenders don’t need to appraise the borrower or their cash flows. Rather, just need to appraise the quality of gold through a standard process giving enough comfort to issue loans. Banks & NBFCs have done this for decades, and informal money lenders, for centuries.
A massive market, a secure liquid collateral and a significant interest arbitrage were ripe for disruption. That’s where Rupeek stepped in.
They’ve created a classic “industry disrupting business” by understanding the simple nuances of the game.
Rupeek has disrupted this age-old industry by providing gold loans at the customer’s doorstep. This is a significant shift in customer experience as the customer now doesn’t have to wait in long lines at the bank or NBFC branch but can comfortably avail a loan from the safety of their home in just 45 mins. Once the gold is appraised and loan dispatched, Rupeek stores the customer’s gold at their nearest partner bank’s vault. Since Rupeek doesn’t run any own branches, they benefit from extremely low operating expenses.
As per RBI regulations, only 75% of the value of gold can be loaned out as capital to customers. Thus, incase of defaults, the collateralized gold more than covers for the loan and any expenses incurred by the lender. This disincentivizes defaults and Rupeek sees practically 0 NPA rates – the dream of any lender.
Instead of raising capital and lending off their own book, Rupeek partners with the largest commercial banks in India and lends off the bank’s books. Not only does this give them an unlimited supply of capital, but also a supply at extremely low costs compared to NBFCs which they can pass onto customers as loans at lower rates.
Moreover, where these bank partnerships really trump legacy gold NBFCs is in the finer detail of RBI’s regulations. As per the BASEL III norms adopted by RBI, banks don’t have to park any equity as a part of Tier-I capital as the risk weightage for gold loans for banks is 0%, but gold loan NBFCs have to put up 15% equity as a part of Tier I capital as the risk weightage is 100%. Essentially, this means bank have infinite leverage on capital loaned out against gold – an unassailable moat.
Banks are happy to partner with Rupeek as they help increase their retail loan book across a diversified set of customers. And customers love the service as they are now treated as royalty at their doorstep.
But most importantly, these unique strengths of the business model have translated into actual monetary benefits for customers. Rupeek is offering loans at an interest rate as low as 5.88% per annum. This is orders of magnitudes below the predatory 40%+ rates that unofficial money lenders charge in the informal economy. Rupeek is enabling real savings and giving credit to customers with dignity rather than preying on them the way the informal industry has for centuries.
The result – Today, Rupeek is India’s leading asset backed fintech platform providing a complete digital ecosystem around gold.
At Lightbox, we’ve closely watched the Indian fintech sector for years now. We’ve come across multiple opportunities of efficiencies and disruption. But what really stands out for us in Rupeek (beyond just the ingeniousness of their business model) is the sheer impact their idea is creating for India as a nation.
Rupeek is enabling credit to the underbanked, credit starved masses of India. These masses run small businesses and MSMEs providing employment across the country. Think of kirana store owners, distributors, small manufacturers, farmers etc. Providing loans to them to fulfil their aspirations, is providing loans for the development of India.
This is exactly what Mr. Modi meant in his speech and why we believe backing startups like Rupeek is the right use of venture capital money in India.
