Fintech Lenders Embrace Private Credit for Growth Amid Rising Costs
Fintech lenders are increasingly partnering with private credit firms to secure capital, diversify their borrowing sources, and fuel growth. In the first half of the current calendar year, these fintechs raised nearly Rs 1,400 crore from private credit firms, industry estimates reveal. Notable deals include Fibe securing Rs 750 crore, Kissht obtaining Rs 100 crore, and Grip raising Rs 83 crore.
Why Private Credit? A Need for Flexible Funding
The shift towards private credit comes as fintech lenders seek faster and more flexible funding options to meet their capital needs, even at a premium. “Fintech lenders are turning to private credit firms despite higher funding costs,” explained Ankur Bansal, Co-founder and Managing Director of BlackSoil Capital. “They are seeking growth capital, understanding that in the long run, the pricing is not permanent. As fintech expands and trust between the parties strengthens, funding costs typically decrease,” he added.
Higher Borrowing Costs, Yet Greater Flexibility
Securing funds from private credit firms is costlier for fintech companies compared to traditional banks. Industry sources suggest that banks offer loans at rates around 11%, whereas private credit firms charge between 15% and 16%. However, the benefits of quick execution, confidentiality, and greater flexibility often outweigh these higher costs for many fintechs. “Banks are relatively slow in responding, while private credit firms provide a much quicker turnaround time,” said the co-founder of a digital lending platform. “With India’s growing economy and high demand for credit, fintech lenders are eager to diversify their funding sources.”
BlackSoil’s Investment Strategy: A Case in Point
Private credit providers like BlackSoil Capital are actively participating in this trend. In the first half of the year, BlackSoil invested nearly Rs 200 crore in seven fintech companies, including notable names like Mobikwik, Slice, and Rupeek. According to Bansal, the cost of borrowing varies among fintech firms based on their size and assets under management. Those with larger loan books or substantial assets tend to secure funds at relatively lower rates.
Smaller Deals and Gradual Trust-Building
While some major deals exceed Rs 100 crore, several transactions between fintechs and private credit firms involve smaller amounts. Companies like Lendingkart, M2P Solutions, Jupiter Money, Moove, and Epimoney also tapped into private credit for funding this year. Typically, these partnerships begin with modest funding amounts, gradually increasing as trust develops between the parties involved.
Private Credit’s Appeal Amid Changing Interest Rates
For investors, private credit investments offer consistently superior returns, especially during prolonged periods of low-interest rates, despite the higher risks. This has led to a growing appetite among private credit firms to engage with fintech lenders. In fact, private credit, which involves non-bank lending provided on a bilateral basis, has grown fourfold over the last decade, according to the Reserve Bank of India.
The Future: Building Long-Term Relationships
As fintechs continue to expand, their reliance on private credit is expected to persist, driven by the need for diverse funding sources and rapid execution. Although initially more expensive, these partnerships often evolve into long-term, mutually beneficial relationships, with costs gradually decreasing as both sides gain confidence in each other.