In a first-of-its-kind initiative globally, Facebook Inc. has started offering loans worth up to ₹50 lakh to its advertisers in India numbering in the hundreds of thousands.
The loans will bear a set interest rate of 17-20% and businesses, owned either partly or wholly by women, will receive an additional 0.2% reduction in the loan rate, the world’s largest social networking site said.
Ajit Mohan, head of Facebook India, said a “significant” number of the approximately 200 million businesses using Facebook, WhatsApp and Instagram worldwide are from India.
He said 15 million businesses in India are using the recently launched WhatsApp Business platform. Facebook owns both WhatsApp and Instagram and allows businesses to use products built across these apps.
Facebook has partnered with a technology startup, Indifi, for the loan venture in India, its largest market worldwide with more than 340 million users. Indifi will decide on the eligibility criteria of the borrowers, such as creditworthiness and also bear the risk of loan defaults.
Founded by Alok Mittal, who earlier set up Canaan Partners in India, Indifi is a six-year-old lending platform focused on small and medium enterprises.
The company already offers zero-collateral loans to small businesses but the partnership with Facebook will give it the chance to reach more borrowers, said Aditya Harkauli, chief business officer of Indifi Tech.
Indifi uses digital processes for know-your-customer (KYC) checks and verification of companies. Harkauli said while the company has a non-banking financial company licence, it also partners with private banks to provide loans to small- and medium-sized businesses (SMBs). Businesses are given a loan marketplace to choose from in a bid to earn the best rates.
To be sure, Facebook announced a $100 million small business grants programme for 30 countries, including India, last year. This was meant to help SMBs affected by the pandemic.
Mohan said about $4 million in grants has been deployed to more than 3,000 SMBs across Delhi, Gurgaon, Mumbai, Hyderabad, and Bengaluru.
He said Facebook would keep an “arm’s length” from the actual lending process. The company won’t be involved in determining who is eligible for loans or their recoveries. Indifi will be evaluating the business and will bear the risk of lending. There is no cap on the number of loan disbursals for the businesses, he added.
Facebook also hopes to work with more insurance providers in future for such initiatives.
“While the rationale for the SMB grant was rooted in the financial crisis, we are aware there are other structural challenges that have been around for a long time,” Mohan said.
“Multiple studies have indicated that the estimated debt requirement for MSMEs is anything between $200-400 million,” he added. The company also spoke to small businesses in the country, a third of whom said they were struggling to keep cash flow intact.
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