Why is GIFF the Best Time to Take a Loan?

The second half of every year brings with it a large number of festivals. As consumers wait with heightened excitement for significant festivals to roll into their calendars, SMEs prepare for the season by adding to their product lines and offering sweeping discounts on their offerings. To support SMEs all over India in their preparation for the season, Capital Float introduced the ‘Great Indian Finance Festival 2017’ – a one-of-a-kind business loan bonanza.

What is GIFF?

The Great Indian Finance Festival (GIFF) is a loan festival designed exclusively for SMEs like you to help steer your business towards growth. From 1st July to 30th September, Capital Float, the largest digital lender in India, brings you unique deals for financing your business. Our timely processing, low interest rates and great offers will assist SMEs like you focus on fuelling business growth while we take care of the financial requirements.

Timing is Everything

SMEs may be aware of the nature of credit they are seeking, however the timing of availing the loan is usually outside of their control. Factors such as seasonality, market trends and lender’s turn-around-time could affect the timing of availing a loan. Through GIFF, Capital Float attempts to provide SMEs like you quick access to customized working capital loans ahead of the festive season, in order to help you prepare for the peak in consumer demand.

GIFF becomes the best time to take a loan because you can:

  • Cash in on festive buying frenzy: Mid-year marks the beginning of the festive season in India, with most Indian festivals such as Ganesh Chaturthi, Onam, Durga Puja, Dussehra and Diwali falling in the second half of the year. Festivities are widely associated with new purchases and bargains, and business owners must not miss this opportunity. Whether it is expensive gifting in Diwali or home renovation before Ganesh Chaturthi, consumers are prepared to spend. Timing is everything and you need to be ready for the surge in demand to make the most of the festive season. This is where the Great India Finance Festival will help you. At GIFF, you can borrow funds at low interest rates, improve or scale up your portfolio and pass on the cost benefit to your consumer.
  • Get an auspicious start: Several festive occasions in India—for example, Onam—are considered an auspicious time to start something new. This traditional belief adds an air of positivity and encourages SMEs to engage in fresh business initiatives. GIFF further aids by offering lucrative deals to SMEs looking to make the most of these opportune occasions.
  • Save on interest: If you are penny-wise in business dealings, the subsequent savings will directly enhance your cash flow. The Great Indian Finance Festival offers innovative and affordable finance products at low interest rates starting at 16%. Since collateral-free, quick loans are usually available at higher rates of interest, GIFF is the perfect opportunity to avail of customized loan products for different working capital needs.
  • Earn in Gold: To add to the rare loan opportunity that GIFF brings you, Capital Float offers lucrative rewards on loans availed during the season. You get to earn Gold up to ₹10,000 on the loan offering featured during Flash Sales. Keep checking our GIFF page or follow us on Facebook and Twitter to find out the dates of Flash Sales.

Capital Float’s Great Indian Finance Festival can help you make new business headways this festive season. Create a solid foundation with the best financing deals on offer, and push your business towards greater heights with GIFF.

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Capital Float: Banker For Small Businesses – Livemint

Written by Shrutika Verma

Sandeep Bindra, the New Delhi-based e-commerce merchant who runs Pathways Marketing and Consulting Pvt. Ltd is the official distributor of consumer electronics brands such as Havells, Godrej, Usha and Symphony coolers for large e-commerce marketplaces such as Flipkart.com, Snapdeal.com and Amazon.in. Two months ago, Bindra ran out of money raised from family and friends and his pleas for debt for his two-year-old company were not entertained by any bank. “They (banks) ignored us as they do not consider companies that are less than three years old,” said Bindra. With the festival season round the corner, he needed immediate cash to sustain the fast-growing sales online. That is when Bengaluru-based start-up Capital Float came to his rescue.

Founded by Sashank Rishyasringa and Gaurav Hinduja, alumni of Stanford Graduate School of Business, Capital Float is a new-age lending solution that operates online and offers unsecured loans to start-ups, manufacturers and e-commerce merchants such as Bindra. Set up in 2013, the company has already lent to more than 70 borrowers and has disbursed over Rs.20 crore. Run by Zen Lefin Pvt. Ltd, Capital Float is modelled after Atlanta-based Kabbage, which recently raised $50 million from Japan’s SoftBank.

Hinduja, born and brought up in Bengaluru, initially joined his family’s garments business under Gokaldas Exports that was sold to private equity firm Blackstone in 2008-09. He later studied business management at Stanford where he met Rishyasringa. Rishyasringa, 30 looks after finance, business and product development while Hinduja, 32, handles sales and operations. Since inception, the company has grown rapidly and has attracted a total funding of close to Rs.24 crore from SAIF Partners and George Soros’s Aspada Investment. The start-up is drawing the attention of investors and small businesses as it offers fast, affordable and flexible working capital loans, an alternative to traditional lending institutions such as banks, chit funds and local money lenders.

Currently, it lends money to companies that are more than a year old. The amount of fund offered is between Rs.3 lakh and Rs.1 crore. Interest charged on the loan varies and is in line with banks and non-banking financial companies (NBFCs). Bindra, for instance, borrowed a sum of Rs.20 lakh at an interest rate of 18.5%.

Unlike traditional banks, Capital Float lends money to small businesses that might not have collateral, significant revenues or years of experience. But the company does not disburse loans blindly. It employs unorthodox techniques, including psychometric tests to run checks on its clients, gauages their social media reputation, and grills them on business decisions and entrepreneurial skills before lending.

According to Bindra, companies such as Capital Float take away the human element from the process of money lending and make it more data-driven with an algorithmic approach to evaluating whether the business can stand on its feet or not. “In India, a lot of access to finance is based on who you know and how good is your relationship with the branch manager of a bank,” says Bindra.

Agrees Mridul Arora, vice-president at SAIF Partners, “Lending is currently dominated by banks. However, the SME (small and medium enterprises) space is underpenetrated and given the demand perspective, a company like Capital Float has a huge potential.” Arora says online lending business makes economic sense too and counts Capital Float’s access to proprietary data from e-commerce companies as one of its strength.

Rishyasringa says the company started focusing on e-commerce as the sector was buzzing and banks failed to see the opportunity. Today, there are several thousand manufacturers who either sell directly to e-commerce portals or they sell on marketplaces. Capital Float tied up with Flipkart, Snapdeal and Myntra to meet their vendors and understand their requirements. Soon, the company realized that these small businesses were unable to grow because of working capital challenges. Today, Capital Float works with most e-commerce marketplaces and is also a part of Snapdeal’s Capital Assist, a service to provide capital assistance to small sellers.

“When we started digging into entrepreneur finance in India, the scale of the problem was staggering. Today, there is about $140 billion of formal debt provided to SMEs by banks and NBFCs but the unmet need is another $200 billion,” says Rishyasringa, who worked with consulting firms in India and in New York in the financial services and technology space before founding Capital Float

Rishyasringa calls it the “missing middle problem” that he and his partner are trying to solve in the country. “If you are a large or a mid-size corporate, banks will line up outside your door. If you are a rural farmer or artisan, the MFIs will queue up to lend you, but if you are in this missing middleRs.50 lakh to Rs.20 crore turnover range, then there are not many options available,” he explains.

Today, India has more than 30 million registered SMEs and about 35% of these are ineligible to receive any financing from banks or NBFCs. “They look at your financial statement and bank statement but there is lot more which can make these companies underwritable,” says Hinduja.

The idea to start Capital Float struck the duo during their second year at Stanford after brainstorming sessions with their professor and mentor Baba Shiv. “Nearly 10 ideas were shot down before Capital Float was conceptualized,” said Shiv, a director at the Strategic Marketing Management Executive Program at Stanford and an adviser on the board of several companies, including Capital Float. Shiv recalls how the two friends were close to developing something in the taxi services space when they discovered firms operating similar businesses.

The company today takes seven to ten days to approve a loan, which it hopes to bring down to three to five days soon. Companies such as Kabbage take only seven minutes to approve a loan in the US. However, Hinduja does not believe that a company in India can get there because of the risk involved and the lack of data available around a start-up or an entrepreneur.

To be sure, Capital Float is not the only firm in this business. It faces competition, albeit from smaller companies, such as Capital First, NeoGrowth Credit Pvt. Ltd and SMEcorner.in. A lean operation, Capital Float employees 30 people.

The company’s progress is hardly a surprise given the teamwork and similar passions of its founders. For a start, both swear by Jeff Bezos’s biography The Everything Storeas a life changing book. “We can relate to the book at professional and personal levels,” they say. Both want to get into politics at some point. “We want to solve the policy issues and see ourselves in some policymaking roles. We left the (Silicon) Valley and came to India to solve some of the problems people here face,” says Rishyasringa.

Between table tennis matches at their Bellary Road office in Bengaluru, the founders plan to make Capital Float similar to OnDeck Capital (scheduled to go public this month) or the San Francisco-based Lending Club which is all set to raise about $900 million in its initial public offering. The company is scheduled to begin trading on the New York Stock Exchange this week.

These companies not just provide short-term financing but also offer a lending platform to introduce investors and institutions to the ones raising money. “Right now, we are trying to prove to the market that we know how to lend money and we know where our mouth is but we are very quickly starting to convert ourselves into a platform and the pilots have already begun,” said Hinduja.

The question is, how long can the online money lending companies avoid competition from banks? “We are now competing with some of the banks that have realized that e-commerce is becoming an area where they need to get expertise,” says Hinduja.

Among established banks that recognize the trend are Yes Bank Ltd and HDFC Bank Ltd. Both lenders did not comment for the story.

“Companies like Capital Float will not be able to compete with banks at the pricing level whenever they jump into the game. But if these companies execute better and faster they can create a platform to work with banks,” says SAIF’s Arora.

News piece sourced from Livemint. Read the full piece here.

Oct 24, 2018

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Practical Implications of Asset Allocation

Asset allocation, despite its importance in portfolio management, is perhaps the last thing on the mind of the novice investor. Before regaling the virtues of asset allocation, a layman’s definition of asset allocation is perhaps warranted, so here goes: asset allocation is a process by which an investor aims to enhance the risk-reward ratio of a portfolio of risky assets. It is important to stress upon two things here: (1) asset allocation is not a one-time exercise, it is an ongoing process; and (2) the use of multiple asset classes to convert a portfolio of risky assets into a benign money-making machine.

Equipped with a basic understanding of the theory behind asset allocation what is stopping the novice investor from going ahead and enhancing portfolio returns? The reason is that the effect of asset of allocation rests largely on finding asset classes whose returns are uncorrelated with one another – the lower the correlation, the better. For instance, it is popular belief that gold is a hedge against inflation i.e. gold prices and inflation rates move in tandem. Therefore, what one loses in purchasing power is compensated by an increase in gold prices. This, however, is a long term phenomenon i.e. one may witness large deviations in the short term.

The key to benefiting from asset allocation, therefore, is to periodically tweak the portfolio for changes in correlations between asset classes and include new ones with the overall objective of enhancing the risk-reward ratio of a given portfolio. Although this may seem like too onerous a task, the novice investor need not worry. A certain level of diversification via asset allocation can be achieved by following the below steps:

  1. Ascertain whether you have surplus money to invest – a simple equation of income less expenses. The figure you ascertain will comprise your overall pie available for asset allocation.
  2. Understand your needs as defined by three key parameters viz. risk appetite, return requirements and time constraints. Your needs are a function of your age, marital status, number of dependants etc.
  3. Identify avenues to invest in the broadest categories of asset classes viz. equity, debt, commodities, real estate and alternative asset classes.
  4. Steps 2 and 3 will require a bit of periodic back and forth because the asset class(es) you choose will depend on your needs. E.g. someone with a higher risk appetite may have a higher percentage of equities in the pie than someone with a lower risk appetite. The latter investor may lean towards debt investments.

In summary, the age-old adage of not putting all of one’s eggs in one’s basket applies here. A systematic approach to asset allocation with disciplined and timely execution can ensure that investors, novice and otherwise, hold well-constructed portfolios and therefore benefit from asset allocation.

Vinay Basavaraj

Vinay boasts of a decade of experience working in both large and small organizations. His roles have ranged from sales to operations and even a stint in academia. He currently manages affairs in capital markets in Capital Float.

Oct 24, 2018

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How will the GST Impact Financial Services Sector in India?

The Goods and Services Tax (GST) has been the biggest tax reform in India since 1947. Analysts also expect that it will have a huge impact on various sectors of the Indian economy, especially the service sector. Of the segment comprising banks and non-banking financial companies (NBFCs), the fund-related, fee-based and insurance services will witness significant impact as a result of GST implementation and will see shifts from the way they had been operating earlier.

What is really implied by financial services?

The term ‘financial services’ has not been specifically defined by the GST law. However, to understand the implications of this tax on the financial services sector, we need to consider the supply of goods and services that involve the extension of credit support. These services include but are not limited to:

– Loans
– Lease
– Hire purchase
– Conditional sales
– Securitisation or assignment of receivables
– Acquisition or sale of shares and securities

The compliance towards GST can take some effort in the above fields because of the nature of operations conducted by banks and NBFCs concerning credit products, lease transactions, hire purchase, actionable claims and other funds and non-funds-based services.

The GST rate on banking services and services provided by the NBFCs has been raised from 15% to 18% with the execution of this reform from July 01, 2017 onwards. The GST impact on financial services may further be classified into the following sub-sections:

1. Network of branches to be registered separately

Before the implementation of GST, a bank or NBFC with operations spread across India could discharge its compliance on service tax through one ‘centralised’ registration. After GST regulation, these institutions will be required to get a separate tax registration for each of the states they work in.

As a destination-based tax, GST has a multi-stage collection system. In such a mechanism, the tax is collected at each stage and the credit of tax that was paid at the last stage is available as a set off at the subsequent stage of the transaction. This transfers the tax incidence to different entities more evenly, and helps the industry through improved cash flows and better working capital management.

2. Leveraged and de-leveraged Input Tax Credit 

Earlier, banks and NBFCs had been majorly opting for the reversal of 50% of the Central Value Added Tax (CENVAT) credit that they avail against the inputs and input services, while the CENVAT credit on the capital goods was given without any reversal conditions. Under GST, the 50% of the CENVAT credit that was availed for inputs, input services and capital goods has been reversed. This leaves banks and NBFCs with a decreased credit of 50% on capital goods, and in turn raises the cost of capital.

However, this can be counterbalanced by the advantages posed by operating one’s business in the new taxation scenario. A unified domestic market can help with more opportunities for expansion and reduced production costs enhancing one’s profitability.

3. Evaluation and adjudication 

The impact of GST on banking services and NBFCs will also be felt in terms of evaluation procedures. Service tax was assessed by the particular regulators in the state where a branch is registered. In addition, every registered branch of the concerned bank or NBFC had to validate its position for the chargeability in the respective state and provide a reason for utilising the input tax credit in various states.

The GST assessment will involve more than one assessing authority, and each of them may have a different judgement for the same underlying issue. Although such contradictions can prolong the decision-making process for the financial institutions, the adverse effects of evaluation by one authority can be offset through decisions made by another assessor.

Impact of GST on banking sector – General services 

Banks in India have been levying service tax on most transactions enabled by their systems. These include but are not limited to digital fund transfers, issuance of ATM cards and chequebooks, and ATM withdrawals beyond a specific limit. With GST on financial services, these services will be taxed at the rate of 18% instead of the 15% service tax rate that was being charged earlier. For example, if you withdraw money from an ATM other than your bank’s ATM after exceeding the “free transaction limit”, you are typically charged Rs 20 plus a service tax, which comes to around Rs 23. With the imposition of GST, this amount will go up to Rs 23.60.

However, deeper analysis reveals that such an increase in cost should not be considered a negative GST impact on financial services sector. In the long run, banks will be able to transfer the advantage of input tax credit – enabled under GST – to the customers. Furthermore, services like fixed deposits (FDs) and other bank account deposits that were outside the circle of service tax will continue to remain outside the GST ambit.

A major advantage of GST on financial services and other sectors is that it is a transparent tax and has reduced the number of indirect taxes. It integrates different taxes and ensures that the tax burden is fairly divided between different entities involved in the system. In addition, GST is essentially technology based. The advanced software systems used in its calculation and filing works will reduce the chances of manual errors and will lead to better decision making.

Capital Float too experiences the effect of GST on banking and NBFCs. We find ourselves in the 18% tax bracket, and we maintain our statutory lending policies including low-interest rates and quick disbursement of funds. Taking into account the GST impact on financial services sector, Capital Float will continue to provide the best credit solutions to its clients, customized to adapt to the changes brought by GST on SMEs in various sectors.

Oct 24, 2018