How fintech ‘soonicorn’ KreditBee is scaling as it eyes first full year of profits

Fintech startup KreditBee has an interesting pedigree. After all, it is not every day that one finds an Indian startup co-founded by a Chinese national operating in the country.

India has seen a clutch of startups having an expatriate as a co-founder but one switching from another big startup hub, China, to play the entrepreneur game in India is a rarity.

Sure, we don’t hear more of them anymore after the border skirmish in 2020 that virtually banned Chinese venture capital money pouring into India.

But KreditBee as a platform raised a good dose of its early cash from Chinese investors, arguably thanks to Wan Hong, who co-founded the microlending platform in 2015 with Madhusudan E and Karthikeyan K.

Madhusudan, who holds a bachelor’s degree in engineering from NIT, Surathkal, was previously the business development lead at Chinese telecom equipment and smartphone maker Huawei. Hong, a graduate of Wuhan University in China, also previously worked for Huawei for over a decade.

Business model and investors

KreditBee offers unsecured personal loans to young professionals, with ticket size varying from Rs 3,000 to Rs 3 lakh with average tenure of around five months. Under the parent Finnov Pvt Ltd, the group has Finnovation Tech Solutions, which runs the tech platform, ‘KreditBee’. In turn, KreditBee originates loans for its inhouse NBFC arm KrazyBee among other partner lenders.

For the last three years, KrazyBee has been offering unsecured loans to young professionals. Prior to that, it lent to students with a tenure of up to two years.

The parent earns revenue by way of processing fees from borrowers, along with commission income from partner lenders. It has an in-house technological base with integration for loan origination, risk assessment, collections and accounting. Given the digital play it has a pan-India footprint.

KreditBee raised a seed funding round worth $2 million from Chinese micro-lending platform Fenqile and ad network YeahMobi in 2016. This was followed by a $3 million in pre-Series A funding from VC firm Plum Ventures and existing backers.

In 2017, it received its Series A capital from handset maker Xiaomi and Shunwei Capital, among others. Thereafter, it added Arkam Ventures and ICICI Bank to its investors list. Last year, it raised a large $145 million Series C round that included a secondary transaction providing an exit to the Chinese investors.

With a long list of new backers such as NewQuest Capital, Motilal Oswal Private Equity, PremjiInvest, Alpine, Mirae and returning investor Arkam, the company did not have anything to complain. It also topped up its coffers with funding from India SME Investments via a mix of debt and equity.

While the Chinese money is all but gone and Wang Ho not directly involved in the operations, KreditBee has come a long distance with around $200 million in total funding, almost half of which went into the company as a fresh infusion. This has set the right base for the company.

How is it scaling?

The group’s disbursements rose soared before the onset of the Covid-19 pandemic in early 2020. This took its disbursement to Rs 7,324 crore for the year ended March 31, 2020 from Rs 102 crore in FY18. In the same period the assets under management (AUM) grew to Rs 1,090 crore from Rs 42 crore.

Then came the Covid-19 avalanche. It scaled back disbursements to under a third of the previous year. Nevertheless, as the economy opened, disbursements almost tripled last year and AUM almost doubled from the pre-pandemic peak.

This has now sped up further. In the first quarter ended June 30, KreditBee’s disbursements hit an annualised run rate of over $1 billion, surpassing the pre-pandemic high.

The group, which was profitable earlier but slipped into the red during the pandemic, was back in the black a year ago. It posted a net profit in the first quarter of the fiscal year, too, setting itself for a full year of profit in the period ending March 31, 2023.

But it still faces risks. The category it focuses on, unsecured lending, is prone to asset quality slippages.

During the first two waves of Covid-19, its asset quality metrics had weakened, relatively. Collection efficiency was impacted during the first two waves but with the reopening of economy and revival, the collections inched up to 95% and have remained stable at 91-95% since January 2022.

This has pushed back bad loans back to negligible levels by June 30.

In the same time, the company has shifted focus to borrowers with better credit history. Of the total disbursements since April 2022, almost 89% has been to those with CIBIL score of more than 700; over the twice the proportion earlier.

Additionally, bulk of the disbursements are to repeat borrowers with a track record with KrazyBee, which provides some comfort.

Given the business model, the group generates both interest income from the loan extended by KrazyBee and processing fees at the platform level with each disbursement. Given the short tenure of loans, the processing and other service fees have a significant contribution to the earnings. Over the last four years, processing fees brought as much as four-fifth of the total income.

Processing fees, which had hit a peak in FY20 is yet to reach the previous high, though it could match or even surpass that level in FY23. The firm also bore additional advertising and marketing expenses affecting its profitability.

But the increase in disbursements should support the revenue, which along with control on asset quality is expected to provide better support to earnings, over the medium term. The firm would then be looking to go back to new investors hoping to shift from a ‘soonicorn’ to a ‘unicorn’ club of startups with a valuation topping $1 billion.