The concept of affordable housing got a fillip across India following the launch of Pradhan Mantri Awas Yojana (PMAY) in June 2015. Once considered a sunrise segment, such schemes aim to help lower-to-middle-income people seeking home ownership in metros and non-metros.
But despite government initiatives, people often need help to get maximum benefits in terms of tailored schemes, eligibility criteria, competitive interest rates, and suitable loan-to-value ratio.
According to Atul Monga, founder and CEO of BASIC Home Loan, there are several reasons why people don’t get the best deal when raising a loan for affordable housing, especially in Tier II and III cities or beyond.
For one, people may have limited options depending on the location and the loan amount as banks use a fixed-cost and branch-led model, and providing loans may not be viable if the customer acquisition cost is too high. Also, a property must have adequate market value if the lender has to redeem its investment due to non-payment.
To mitigate the home loan hurdles in underserved areas, the fintech platform matches borrowers with lenders via a digital marketplace, enables a paperless loan application process online, and ensures hassle-free loan approval.
The tech-first mortgage distributor has designed a phygital model to combine digital efficiencies with in-person assistance from a network of trained direct-selling agents. Users can raise home loan requests on BASIC’s website, through builder partners, or the DSA network. The hybrid model helps serve the diverse requirements of a broader target audience who may not be comfortable using online-only transactions.
The fintech startup has partnered with 90 banks and LAPs (FIs offering loans against property). It claims to have serviced 2.25 Lakh customers and disbursed home loans worth INR 10,000 Cr. It currently operates in three metros (Delhi, Mumbai, and Bengaluru) and several Tier II and III locations, such as Thane, Mohali and Ayodhya, serving customers across 650+ districts.
Its key lending partners include industry leaders such as the State Bank of India, ICICI, HDFC and Axis Bank, PNB Housing Finance, Piramal Finance, Tata Capital, Bajaj Finserv, IIFL, and more.
It earns commissions from transactions done by partner banks, NBFCs, and other FIs via the platform. This can go up to 2.25% of the deal value, depending on the lender, the type of loan product, and other factors. It also helps the startup maintain a healthy CM1 of 35% (contribution margin 1 indicates gross profit per unit or selling price minus the cost of the item sold). However, its services are free for retail users raising home loans via the platform.
The Back Story
Monga and Kalyan Josyula launched BASIC Home Loan in July 2020, during the COVID-19 pandemic, when most startups were downsizing or shuttering their businesses. By then, Monga, a mechanical engineer from IIT-Delhi, had stints at leading firms such as Policybazaar and Credit Suisse and worked as an investment banker. It did not take him long to realise that apart from the general credit shortage in the affordable housing space, the sector was underserved beyond Tier I due to the lack of equitable credit distribution.
Terms and conditions are often too complex and need to be clarified, leading to inconvenience and trust issues. Things took a turn for the worse during the pandemic, as FIs nearly stopped functioning during months-long lockdowns. New-age fintechs were agile enough but focussed on small-ticket personal loans with short repayment tenures.
Recognising the untapped opportunity, Monga and Josyula took the plunge. They conducted extensive market research and interacted with potential homebuyers through surveys and interviews. This hands-on approach, combined with their unique skills, convinced Picus Capital to invest $500K in their venture.
BASIC’s Playbook For Building Affordable Housing Loans
BASIC aims to democratise home loans in the affordable housing sector, with a focus on Tier II cities and beyond, where such projects are swiftly gaining traction. It has also automated the entire application process and backed it up with suitable human interventions to ensure that obtaining home loans for consumers remains as hassle-free as possible.
However, its role as a home loan enabler/mortgage distributor has its fair share of challenges. Incorporating/updating lenders’ policies, rules and regulations around the clock is onerous, and resets are not always possible. Additionally, building an in-house tech stack for fast and error-free operations requires top-rated tech talent and unconventional thinking to stay ahead of the curve.
Running an asset-light but vast network of home loan agents to achieve desired business outcomes is also tough in unorganised, offline markets. They are not the typical sales associates but the backbone of BASIC’s district-level business and a core component of its revenue growth.
Monga, however, thinks that regulatory compliance at all operational levels and winning user trust while digitalising its processes have been the toughest of all. It has developed a five-point programme that aligns with the mortgage market dynamics to deal with these challenges:
Protocol at play to find suitable lenders & align with them: BASIC conducts a thorough search, analysis and assessment to identify a lender whose vision, operations, financials and other factors align with the startup’s goals.
Proprietary tech & compliance: The fintech startup has developed a proprietary product-eligibility matrix (PEM) to match loan products with borrower profiles and property details.
On the other hand, its CRM system helps speed up customer KYC and tracks each application. Besides, the dynamic document rule engine ensures that all documents have been collected and digitally checked by the compliance team.
If a loan is sanctioned after due diligence, a BASIC advisor helps with agreement signing and collects all hard copies required by the lender. The entire process hastens the turnaround time and the loan amount is disbursed within 10 working days or 76 working hours.
To ensure compliance, BASIC has invested in advanced encryption technologies and secure data storage solutions to protect sensitive customer data. It also educates consumers about the benefits of going digital, such as better assistance, quicker loan processing and advantageous mortgage availability.
Trained agents for superior customer service: The fintech’s vast network of agents are trained local experts who ensure a steady business flow by tapping into communities and enhancing customer support by offering personalised services. BASIC selects people from sales, finance, or real estate based on their previous business performances, tech orientation and alignment with its core business values.
Is Affordable Housing Still A Distant Dream In India?
Census 2011 put the number of homeless people in India at 1.7 Mn. It is difficult to peg the current estimates for the lack of data. The number has likely gone up, as India currently has the largest population in the world.
BASIC is aware of the ground realities, and Monga emphasises the need to make home loans more accessible and affordable if universal housing is to happen in India soon. “We plan to improve technology-based product development and risk-sharing by partnering with more lenders and thus cater to a bigger consumer base,” he added.
While Picus Capital did the initial funding to help launch BASIC Home Loan, Venture Catalysts++ (India’s first multi-stage VC) has been a crucial pillar of support, consistently backing its growth journey, says Monga. The VC firm has already invested $3.5 Mn to grow its business.
“Since its initial funding, it has participated in all our funding rounds. But there’s more to it than providing capital. Its extensive network and industry contacts have accelerated our growth. The angels and the family offices we connected with through VCats++ have provided funds and offered valuable assistance in overcoming challenges along our journey. Many of these investors are seasoned entrepreneurs, offering guidance and insights whenever we have encountered obstacles during our expansion,” the CEO added.
However, they face the challenge of navigating complex and evolving regulatory landscapes, which can be particularly daunting and costly for fintech brands, especially startups with limited resources.
Nevertheless, the demand for home loans will continue to surge in a country like India, where owning a home remains the cornerstone of financial growth and personal achievement.
Will BASIC and its ilk emerge as innovative neobanks of the ‘affordable home’ loan sector? For now, the focus is on empowering potential homebuyers with the best possible loan terms, interest rates and associated fees so that they can make informed decisions. But that will not deter them from exploring and developing new mortgage products with built-in benefits for all stakeholders.
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