How Fintech Is Managing Collections For The Delinquent Customers?

Several Founders, Co-Founders, CXO Bankers, CXO Fintech professional who participated in an e-panel discussion:

Mr. Manish Khera, Former Founder, MD & CEO , FINO
Mr. Riaz Maniyar, Founder & CEO at easy2lend.com
Mr. Surendra Jalan, Founder & CEO at OHMY technologies Private Ltd
Mr. Ravi Virwani, Vice President – Rural Home Loans, Fullerton India Home Finance Company Ltd
Mr. Rajiv Rai, Chief Digital Officer, Edelweiss Financial Services

Many other CEO/CXO Bankers & Fintech professionals on FIAKS Forum

FIAKS Community Question

While underwriting to MSMEs (Micro, Small and Medium Enterprises) is being done using various alternate data and making entire pre-disbursement process through digital support, how are fintech managing collections (for delinquent customers, not regular EMI banking) given the limited physical presence?

FIAKS Community Discussions

Responding to the question, a FIAKS community expert said that there are models like FLDG (First Loss Default Guarantee) which bank will use with aggregators. A first-loss default guarantee (FLDG) makes the provider of the guarantee liable to bear losses up to a certain specified limit. FLDG cover is a common way of protecting the interest of lenders who lend money to micro-finance institutions or non-banking finance companies (NBFCs) and the magnitude of cover depends on banks’ risk appetite. Each bank and the financial institution will have its own matrices on deciding the loans. For example, a bank may charge 10% loan amount as FLDG to this aggregator and have control on the disbursal. Financial institution gains because of the low cost of acquisition. The risk takers here are the Financial Institutions (Bank/NBFC).

The role of credit due diligence has been outsourced since ages except that it has become more tech/data-driven off late. Many lending fintech firms are working on this model. Technically sharing of risk wouldn’t be allowed.

Kindly note that collection is a painful activity, especially if given without any collateral or PDCs. Credit Bureau act as a deterrent to some extent. However, a few steps and processes, like the following, can help –

Calling – soft call after the person skips paying EMI is the first step 
Writing to the client about perils on his social media messaging app – including educating about lowering of CIBIL scores and action under Section 138
Legal notice through a company lawyer – a standard format is maintained
Sending a letter to the client at the place of work
Sending information (physical letter or email) to higher-ups on poor track record