Why lending is hard?

Lending is a hard business in India. Ruthless.

Competitive success is a result of difference in relative cost, price or both when compared to your peers. It is extremely hard to build this in the Indian environment.

Capital being a commodity makes it nearly impossible to charge higher prices (Rate of Interest in case of lending) as the perceived and financial value are the same. Brand reputation, trust and customer experience are factors that can affect the decision of a potential customer, but only if the delta is a few basis points. A hard sell even then.

To be able to tailor your value chain to get a cost advantage, you’d have to

1. Get access to capital at a lower rate than your competitors. Raising money from capital markets for a NBFC is regulated by the RBI offering no alpha. In an alternate reality you could be someone like Bajaj or Aditya Birla who have access to cheaper capital (I am sure that even these behemoths raise capital from the markets, I am talking about the blended cost of capital) from other large successful businesses.
2. Build IP in underwriting. This is perhaps the only defensibility one can build-Understanding your customers and their cashflows better than anyone else. But it takes years if not decades to get good at it. Especially since the business cycle is long (a minimum of a year).
3. Optimize for cost of delivery and collections. Optimizing for operation efficiencies across the funnel is what gives rise to hard task masters and autocratic leadership. Again almost impossible to generate real alpha here on account of activities like selling and fulfilment being generic in nature.