As Part of Rs 252 Cr Fullerton Financial Holdings to Acquire Controlling Stake in Lendingkart

Leading MSME-focused digital lending platform Lendingkart has revealed that Fullerton Financial Holdings (FFH), a wholly owned subsidiary of Singapore’s Temasek, will purchase a majority position in the business, which is a significant milestone for India’s fintech sector. Pending regulatory approval, the acquisition represents a significant advancement for Lendingkart in its efforts to fortify its position in underprivileged communities throughout India.

Credits: Money Control

Since 2018, FFH has been a significant investor in Lendingkart, owning about 38.16% of the business as of March 2024. With this most recent investment, which includes a Rs 252 crore capital infusion, FFH will bolster its position as the company’s primary driver of future growth. The precise percentage of FFH’s post-acquisition ownership has not yet been made public, though.

Capital Infusion to Drive Growth and Technological Innovation

It’s anticipated that FFH’s new funding will greatly expand Lendingkart’s operational reach and technological prowess. The deeper cooperation with FFH is exciting for Lendingkart’s founder and managing director Harshvardhan Lunia, who called it a “vote of confidence” in the company’s capacity to change the MSME lending landscape in India in a statement.

A Stronger Partnership to Serve India’s MSMEs

Since its founding in 2014, Lendingkart has been well-known for offering business loans and working capital to retailers, with a focus on unsecured lending through its own non-banking financial corporation (NBFC), Lendingkart Finance Limited (LFL). In order to enhance its disbursement capabilities, the company engages in co-lending partnerships with banks and other non-bank financial institutions.

In the past ten years, eminent investors including India Quotient, Mayfield India, Bertelsmann, and Saama Capital have contributed around Rs 1,050 crore to Lendingkart. According to the company, it has used its scalable strategy to provide over 3 lakh loans, totaling over Rs 20,000 crore, primarily to small and medium-sized enterprises (SMEs) in underserved markets.

Impressive Asset Growth, but Profitability Declines

As of March 31, 2024, Lendingkart’s Assets Under Management (AUM) had grown by 46% year over year to Rs 7,254 crore, according to ICRA ratings. Its co-lending agreements played a major role in this expansion; loans through co-lending partnerships, or off-book AUM, now make up 70% of the portfolio overall, compared to 39% the year before. For these co-lending agreements, Lendingkart has teamed up with 25 lenders, enabling it to reach a wider market without depending entirely on its balance sheet.

Lendingkart experienced difficulties with asset quality in FY24 despite an increase in AUM, mostly as a result of collection problems that increased credit costs. Despite a rise in total revenue from Rs 824 crore to Rs 1,146 crore, the company’s net profit decreased to Rs 60 crore in FY24 from Rs 116 crore in FY23. Due to the company’s increased operations and investments in fresh growth projects, operating expenses also increased, rising from 6.4% to 7.4%.

Credits: DT Next

On a consolidated basis, Lendingkart’s profit after tax took a sharp hit, dwindling to a mere Rs 3 crore in FY24 from Rs 119 crore in the previous year. Total consolidated income, however, continued its upward trajectory, reaching Rs 1,218 crore.

Regulatory Challenges and the Future of Unsecured Lending

Since unsecured loans make up all of Lendingkart’s AUM, unsecured loans are a major component of its business model. Faster approval times and greater flexibility are made possible by this, but the expenses associated with borrowing have increased and collecting past-due loans has become more challenging. Recent RBI rules pertaining to default loss guarantees (FLDG guidelines), which increased scrutiny of unsecured lending operations, have had a significant effect on Lendingkart.

Nevertheless, government-backed programs like CGTMSE and CGFMU secure around 64% of Lendingkart’s AUM, acting as a safety net against possible credit losses. Notwithstanding the difficulties presented by unsecured lending, ICRA states that these programs should assist Lendingkart in limiting its net credit losses.