Technology platforms can speed up lending process against financial securities

Lending through fintech platform is growing at a rapid pace in India. However, lending against securities like mutual funds, stocks, debentures and others has not picked up yet. Many feel that lack of digital infrastructure is the reason behind such slow growth. Technology service provider like Lark Finserv is trying to solve this problem as it enables lenders to provide loan against financial securities like mutual funds.

In a conversation with the Bizz Buzz, Lark Finserv’s Cofounder & CEO, Rohit Pateria said that the company is witnessing a good traction for its technology platform. It is partnering with several large fintechs, financial institutions and small & medium enterprises (SMEs), which are using its platform for extending loans to customers against financial securities

What the motivation behind starting Lark Finserv? Can you give a brief overview about its inception?

We started this company in July 2023. We started the company with the sole focus of exploring the opportunity of lending against securities in India. Lending against security is something actually has huge potential, and that potential couldn't be explored so far, only because of the lack of digital infrastructure.

Digital infrastructure like availability of APIs was lacking. If you see market participants, custodian of securities and public digital infrastructure and put them together then a proper infrastructure to facilitate lending against securities is created. Three years back, that was not the case and APIs were not ready. Now, lending against financial assets is not something new.

Many banks and NBFCs have been doing it. But the growth is not up to desired level because of lack of digital infrastructure. We have seen the growth of unsecured loans for individuals and businesses. It has grown rapidly only because fund is available at the click of a button. We have seen growth of digital loan applications.

This opportunity was also there in lending against securities case. However, it couldn’t take off because of the absence of proper digital infrastructure. The scenario has changed now. Every bank and NBFC is looking at cashing in this opportunity. This is also a huge opportunity for fintechs. Looking at the opportunity of this market, we decided to build a product.

We have built a platform which is used by wealthtechs and related entities. Our go-to-market is to partner with wealth management firms and offer them our digital infrastructure so that they can offer lending against mutual funds or lending against stocks to their customers.

So, our partners include wealthtech firms, fintechs, mutual fund distributors, IFAs, stock brokers and others. We are integrating our platform with their digital infra and make lending against securities a seamless and frictionless journey.

My professional experience also motivated us to start this venture. I am a Chartered Accountant with more than 20 years of experience in capital market. In our opinion, there is huge prospect of lending against securities market that is waiting to be tapped.

Because Indian mutual fund market is growing very fast. But people also redeem part of their investments or whole of their investments before their maturity. Investors have to sell the mutual fund units at the time of need as there is lack of liquidity.

So, our tech platform helps in preventing these redemption as investors can get loans against their securities. This way, the long-way investment goals are not compromised and investors are able to access capital at the time of need.

So, Lark Finserv’s tech platform currently enables lending against mutual fund units. Are you planning to add lending against other financial securities? Can you provide some views on this aspect?

Currently, our platform enables lending against mutual funds. But in a short period of time, may be in two months, we will enable lending against demat securities like stock, bond, debentures, EPF and AIF also. Multiple lenders are currently being integrated in our platform.

Large NBFCs like Bajaj Finance and many others are being integrated for lending in our platform. Similarly, Canara Bank and South Indian Bank are also being integrated for lending against securities. We are witnessing rapid adoption of our platform. Our platform is plug and play type wherein it is integrated with the users’ mobile or web app easily.

How is the response so far? Can you provide some view on your user base as of now?

Response has been very good so far. We are building on the momentum with focus on new customers. As far as revenue model is concerned, our users are paying us a monthly fee for using the platform.

We are not charging per user basis like other SaaS (software as a service) products because this is a new product and we are building a new category. We want more users to use it and enable lending against financial securities.

We have made our service offering very simple so that more people can use it. Currently, we have four products for different users and we want to make these products popular among users.

Which is the biggest consumer base for the company as of now? What are your growth expectations?

Currently, small and medium businesses (SMBs) are the biggest revenue contributors for our company.

However, we see enterprises becoming the biggest segment going ahead. We are confident that in the next six months, major revenue contribution will come from enterprises.

How big is the team now? How many members are there in the technology team? Will you add people as you plan to increase the product portfolio in the near future?

We are an 18-member team now out of which eight members are technology professionals. Current strength is optimum, factoring in the new business that will flow after the new products are added. We will also scale up as we grow.

Have you raised capital so far? Are you planning to raise capital in the near future?

Yes, we have raised a pre-seed capital so far. We are planning to raise a seed round from investors in the near future. Around $2 million of capital raise, we are looking at. As far as profitability is concerned, we are in an investment mode. We are expanding the market through investment in products and marketing.

In terms of future growth, we see huge growth opportunities going ahead. We anticipate a hockey-pattern of growth in coming years. We are witnessing month-on-month growth of our platforms. We are forging new partnerships and as large partners come on board, growth will come at a natural outcome.