Facebook is one of the most prominent social networking sites in India. Since it is a social networking site available in different parts of the world, location is not a barrier. It has helped to create a brand for many individuals and businesses in India. And now Facebook has announced its new program called Small Business Loans Initiative, which addresses some of the most significant pain points small businesses face when acquiring loans. This new program is launched in India to help small and medium-sized businesses acquire loans in the South Asian market, as the company makes a further drive to extend its occupancy among dealers. Last year, Facebook announced a $4.3 million grant for small businesses in India. And now its new loan program will provide its lending partners to grant small-ticket loans, ranging between Rs 5,00,000 to Rs 50,00,000, at a predefined interest rate of 17% to 20% per annum. The program won’t require the businesses to provide any joining or collateral fees as well.
This is the first time Facebook has launched a program of this type in any market. India Head of Facebook, Ajit Mohan has stated that small businesses in 200 Indian cities can apply for the loans. Moreover, the businesses fully or partially run by women will be able to acquire the loan at a special 0.2% reduction rate per annum. Facebook is also making businesses informed of the lending program and it has managed to enhance the underlying lending structure such as boundaries for interest rate, and engagement responsiveness between the lending partner and businesses. There will be an on-call support system within one day of applying and the ticket size of the credit amount.
For the Small Business Loans Initiative program, the social media giant has partnered with a technology start-up, Indifi. Founded by Alok Mittal, who earlier set up Canaan Partners in India, Indifi is a six-year-old lending platform centered on small and medium enterprises. Indifi will conclude on the eligibility criteria of the borrowers, such as creditworthiness, and likewise, bear the risk of loan defaults under the loan venture of Facebook. Indifi will distribute the loan amount within five working days of the borrower fulfilling all documentation formalities after approval of the offer by Indifi.
Facebook presumes more partners to join the program, and it has announced that it is working at arm’s length with its lending partners, but those partners will be handling all the risks of loans payment and determining the eligibility criteria. According to Facebook, the borrower business must have displayed on the Facebook family of apps for at least 180 days at the time of application as one of the factors for eligibility.
According to a survey conducted by Facebook in collaboration with Organization for Economic Corporation and Development (OECD) and the World Bank last year, almost a third of operational small and medium-sized businesses on Facebook in 2020 stated that they expected cash flow to be one of their primary challenges. The company is not planning to monetize the new program. At the briefing of this new initiative by Facebook, it stated, “We believe it is in our self-interest for there to be massive growth in the small business ecosystem in India because as a company we are playing this for the long term. We will disproportionately benefit because a lot of these small business activities happens on our apps as they grow,”
Facebook has claimed that it doesn’t have any revenue-sharing agreement. And they are expecting that on the back of programs like these, other companies will likewise create plans so that there is more access to credit in the market. The loan program for small businesses is not the first time Facebook has taken interest in South Asian nation’s affairs. The company, which recognizes India as one of the most comprehensive market users, last year invested $5.7 billion in Indian tech giant Jio Platforms to work on, among other things, digitizing small businesses in India. And now the new loan initiative is a huge step in the direction to make small businesses in India grow and prosper. Facebook is not planning to monetize the new loan initiative, as many of the small business activities happen on their apps as they grow. And the company also speculates that there will be massive growth in the small business ecosystem in India.
. . .
Reference:
- www.facebook.com
- www.businesstoday.in