Lendingkart Business Model: How Does Lendingkart Earn Money?

Lendingkart, established in 2014, has emerged as a prominent financial technology (fintech) company in India, specializing in providing unsecured loans to micro, small, and medium-sized enterprises (MSMEs). By leveraging advanced technology and data analytics, Lendingkart has streamlined the lending process, making it more accessible and efficient for small businesses across the country. The company’s business model is multifaceted, encompassing various revenue streams and strategic approaches to meet the diverse financial needs of MSMEs.

Core Business Model

At its core, Lendingkart operates as a non-banking financial company (NBFC) that offers short-term working capital loans to MSMEs. The company utilizes proprietary algorithms and data analytics to assess the creditworthiness of applicants, enabling quick loan approvals and disbursements. This digital-first approach eliminates the need for extensive paperwork and collateral, which are often barriers in traditional lending.

Primary Revenue Streams

1. Interest Income: The principal source of revenue for Lendingkart is the interest charged on the loans disbursed to MSMEs. Depending on the borrower’s credit profile and the loan tenure, interest rates typically range from 1.5% to 2.5% per month. Given the unsecured nature of these loans, the interest rates are higher compared to secured loans offered by traditional banks, compensating for the increased risk.
2. Processing Fees: In addition to interest, Lendingkart levies a processing fee on each loan, usually between 2% to 3% of the loan amount. This fee is charged upfront and covers administrative costs, credit evaluation, and other operational expenses associated with loan disbursement. The processing fee not only contributes to the company’s revenue but also helps offset the costs of maintaining its digital lending platform and technology infrastructure.
3. Co-Lending Partnerships: To expand its lending capacity without significantly increasing its capital requirements, Lendingkart has entered into co-lending arrangements with various banks and NBFCs. In these partnerships, Lendingkart collaborates with financial institutions to jointly disburse loans, sharing both the risks and rewards. This strategy allows the company to serve a larger number of MSMEs while diversifying its revenue streams.
4. Commission Income: Through its “2gthr” program, Lendingkart collaborates with banks and NBFCs to offer co-lending services. This partnership model enables Lendingkart to earn commissions, further diversifying its revenue streams.

Technological Integration

Lendingkart’s success is heavily predicated on its robust technological infrastructure. The company employs advanced data analytics and machine learning algorithms to assess the creditworthiness of borrowers swiftly and accurately. By analyzing a multitude of data points, including financial statements, transaction histories, and even social media activity, Lendingkart can make informed lending decisions with reduced default risks. This technological prowess not only accelerates the loan approval process but also enhances the overall customer experience.

Financial Performance

In the financial year ending March 31, 2024 (FY24), Lendingkart reported a significant increase in revenue from operations, reaching ₹1,090 crore, a 36% rise from ₹798 crore in the previous fiscal year. This growth was primarily driven by a substantial 88% increase in revenue from co-lending activities, which contributed ₹591 crore, accounting for 54% of the total operating revenue. However, the company’s profit after tax experienced a 6% decline, amounting to ₹174.92 crore in FY24, down from ₹185.93 crore in FY23.

Challenges and Strategic Adjustments

Despite its growth trajectory, Lendingkart has encountered several challenges:

• Asset Quality Pressure: The company has faced asset quality issues, leading to elevated credit costs. As of March 31, 2024, the gross non-performing assets (NPAs) stood at 6.6% of the assets under management (AUM). This pressure continued into the first half of FY25, with gross NPAs reaching 12% as of September 30, 2024.
• Capital Constraints: Lendingkart’s capital adequacy has been a concern, with the Tier I ratio declining to 22.6% as of September 30, 2024, from 34.2% as of March 31, 2023. The company has been exploring avenues to bolster its capital base to support future growth.
• Regulatory Changes: The Reserve Bank of India’s guidelines on first loss default guarantees (FLDG) have impacted Lendingkart’s co-lending arrangements, necessitating adjustments in its business model to comply with the new regulations.

Recent Developments

In response to these challenges, Lendingkart has undertaken several strategic initiatives:

• Equity Infusion: The company received an equity infusion of ₹77 crore from Fullerton Financial Holdings in October 2024, with an additional ₹175 crore expected, subject to regulatory approvals. This capital injection is anticipated to strengthen Lendingkart’s financial position and support its lending operations.
• Operational Efficiency: Lendingkart has been focusing on enhancing operational efficiency by tightening underwriting standards and improving collection processes. These measures aim to mitigate credit risks and improve asset quality over time.

Conclusion

Lendingkart’s business model is centered on providing accessible and efficient financial solutions to MSMEs through unsecured loans. The company’s revenue is primarily derived from interest income, processing fees, co-lending partnerships, and commission income. While it has achieved significant growth, challenges related to asset quality, capital adequacy, and regulatory

compliance have necessitated strategic adaptations. Lendingkart has responded proactively by securing additional equity, refining its underwriting process, and optimizing its operational framework.

Future Outlook

As Lendingkart continues to evolve, several key factors will influence its growth and sustainability in the Indian fintech ecosystem:

1. Expansion of Co-Lending and Partnerships
   Lendingkart’s increasing reliance on co-lending partnerships with banks and NBFCs is expected to be a significant driver of future growth. By leveraging these partnerships, the company can expand its lending capacity without overburdening its balance sheet. However, regulatory scrutiny surrounding co-lending practices and First Loss Default Guarantee (FLDG) agreements may require continued adjustments.
2. Enhancing Credit Assessment and Risk Mitigation
   Given the challenges in asset quality, Lendingkart must continue improving its credit evaluation processes. The use of alternative data sources, artificial intelligence (AI), and machine learning (ML) models can enhance borrower profiling, reducing non-performing assets (NPAs) and default risks.
3. Product Diversification
   While MSME lending remains its core business, Lendingkart could explore additional financial services such as invoice discounting, supply chain financing, and embedded lending solutions. Diversifying its product offerings would reduce dependency on traditional working capital loans and create new revenue streams.
4. Technology-Driven Lending Solutions
   As digital transformation accelerates in the financial sector, Lendingkart must maintain its edge in technology-driven lending solutions. Investments in blockchain, AI-powered underwriting, and automated collections could further streamline lending operations and improve efficiency.
5. Regulatory Compliance and Governance
   The evolving regulatory landscape in India’s financial sector demands stringent compliance and governance practices. Lendingkart must ensure it aligns with the Reserve Bank of India’s (RBI) guidelines while maintaining transparency in its lending operations. Compliance with data privacy laws and cybersecurity measures will also be crucial.

Conclusion

Lendingkart has established itself as a key player in India’s MSME lending space by leveraging fintech-driven solutions and innovative lending models. Its ability to generate revenue from diverse sources—interest income, processing fees, co-lending partnerships, and commissions—has helped it scale rapidly. However, challenges related to credit risk, capital adequacy, and regulatory constraints require strategic maneuvering.

With a focus on operational efficiency, technology integration, and product innovation, Lendingkart is well-positioned to navigate the competitive and regulatory complexities of India’s fintech sector. If it continues to refine its risk assessment models, strengthen its partnerships, and enhance its capital base, the company can sustain its leadership in MSME financing and contribute significantly to India’s digital lending revolution.

By adopting a data-driven approach and continuously evolving in response to market dynamics, Lendingkart is expected to remain a frontrunner in India’s fintech lending ecosystem, providing much-needed financial support to MSMEs that form the backbone of the Indian economy.