Housing is a fundamental need and determines the aspirations of a society. In the past decade, there have been many innovations by the government to support housing for middle and low-income groups. It is also an area of interest for many financial institutions.
Basic Loans was founded by Atul Monga, Kalyan Josyula and Pranav Khattar in 2020 to make home loans a faster and stress-free process. The startup is working to digitize real estate loans and increase the penetration of affordable loans for low- and middle-income families.
Basic home loans
“We want to guarantee access and reach for penetration of affordable residential loans in underserved LIG and MIG segments, especially in Tier II and III cities. This involves the construction of better technologies for the development of products and credit on a scale ”, says Atul.
The startup follows a ‘Phygital’ approach to create a network of agents that use technology to take care of consumers – from ‘research’ to ‘final disbursement’ of home loans.
Before starting, Atul and Kalyan worked together at Credit Suisse as part of their investment banking team. An MBA graduate from IBS Hyderabad, Kalyan also worked on Rocket Internet, Awok and Ola.
Atul and Pranav had previously worked together at the Policybazaar. Pranav also worked at HDFC Life and Lifestyle International. He graduated from the Goa Institute of Management in 2014.
Atul worked on the indian fintech industry where he created and led businesses for several digital creditors. Graduated from IIT-Delhi, he also worked at iLoanz and Rubique.
Throughout his career, Atul has discovered that the housing market has enormous potential, but is ignored by ecosystem participants. In addition, the Indian mortgage market is still largely offline due to regulatory and operational restrictions, and major disruptions can be made with the use of technology.
He contacted Kalyan and Pranav about the idea in 2019 and started immediately in six months in 2020.
“Affordable home loans are part of the Priority Sector Lending (PSL) in India and, therefore, banks have to disburse a fixed percentage of their books in the affordable segment. However, the main banks are focused on high-cost loans, as they operate through an agency-led model, where costs are fixed and their revenues are a percentage of the loan amount. In addition, the agency-driven model prevents penetration into Level II and III cities and, therefore, the demand in these cities is clearly not met. This is evident from the fact that 60% of loans in India are disbursed in Delhi-NCR and Maharashtra (mainly in Mumbai and Pune), “said Atul.
Most of these banks purchase books from small home finance companies (HFCs) at the end of the year to meet their PSL targets. This gave rise to several small HFCs with mainly regional operations, which serve customers in fixed regions. These companies lack technology and product innovation and the processes in these HFCs are completely opaque.
This is the segment that Basic Housing Credit is looking for.
How it works?
The basic home loan platform focuses on affordable home loans, which is currently the government’s priority in the PMAY and “Housing for All” schemes.
The client accesses the Basic Housing Loan website and chooses the type of loan he / she wants and then the customer service helps him / her close the loan at zero cost. The loan amount can vary between Rs 5 lakh and Rs 20 lakh.
The startup follows a “Phygital” approach to help its customers with a faster and stress-free credit process.
“We generate business through our website and network of agents. Customer service takes place with our agents for end-to-end service at no additional cost. Everything from documentation to disbursement is done by our agent, who receives a commission on each successful disbursement. This makes it possible for customers to obtain better products through digital comparison, faster disbursements through agent-driven service and total transparency of the loan process at the convenience of their home, ”says Atul.
“We are currently working as brokers for other banks and HFCs, but we are on track to establish our own loan and credit process,” he adds.
Competition and challenges
Since Basic Home Loans is a technology company, it can work with several partners in the banking and lending world. The startup earns a small percentage of money on each closed loan.
In India, some of the companies offering affordable home loans include Can Fin Homes Limited, Cent Bank Home Finance Limited, Dewan Housing Finance Corporation, Aadhar Housing Finance Limited (formerly DHFL Vysya Housing Finance Limited), GIC Housing Finance Ltd, GRUH Finance, Housing and Urban Development Corporation and Housing Development Finance Corporation.
According to the co-founders, one of the main challenges of the startup was to convince banks and HFCs to use technology, which is the biggest problem, as they use legacy processes and systems and are difficult to break into. The mortgage industry in general remains an offline industry mainly due to the fact that India does not have a centralized database of properties and other details.
“The decisive part, in which a property must be analyzed, is difficult to be digitized and there are several regulatory reasons why banks and HFCs need to make disbursements offline through paper documentation”, says Atul.
That said, the startup is paid by the banks for each successful disbursement.
According to McKinsey, demand for affordable housing in India will increase to 38 million units by 2030. In its first five months of operations, the startup registered Rs 200 crore in loan applications and received sanctions of Rs 90 crore.
“We are on track to generate revenue of Rs 2 crore in the first six to seven months of our operations in fiscal year 2021. In fiscal year 2022, we expect revenue of Rs 15-20 crore,” said Atul.
The startup also raised $ 500,000 starting capital from Picus Capital, an early-stage German technology investment company, in October last year.
In the short to medium term, the founders want to establish their own credit through a first loan default guarantee relationship with a partner bank. By the end of the 2022 fiscal year, they want to have their credit platform in at least 20 cities.
In March 2021, the startup claims to have received nearly 1,500 applications from 18 states and 60 districts in India, where more than 500 customers obtained their real estate loans through basic loans.