How a Delhi fintech startup is tackling the liquidity problem for historically overlooked borrowers
Microfinance startup RedCarpet is determined to solve college students’ liquidity crisis by providing small loans based on an AI-determined creditworthiness.
After the Indian government’s demonetization announcement last year the country faced a sharp liquidity crisis that was met with widespread disdain by most microfinance institutions. The majority of borrowers, relying on cash as their form of repayment, found themselves suddenly without liquidity to repay loans, causing repayment ratios to plummet.
Microfinance institutions were not the only ones that found themselves in a bind, though. For low income individuals who lacked access to traditional methods of financing, this exacerbated an already difficult problem.
Despite the various challenges presented by demonetization, RedCarpet has not only managed to weather the drought, but to also secure $2.5 million in additional funding — perhaps due to its unique position at the intersection of microfinance, digital payments, and artificial intelligence.
Targeting college students, who lenders generally find too risky given their lack of a steady income stream and existing credit history, RedCarpet uses machine learning and AI to analyze user data and assign a credit rating based on hundreds of variables.
The strategy appears to be reminiscent of Yongqianbao, a Chinese microfinance lender that analyzes user data such as how many calls go unanswered and how often the phone is charged, to determine a user’s credit worthiness.
In addition, RedCarpet is capitalizing on the growth of digital transactions in the demonetized economy by offering its users the option of repaying loans in monthly installments through the application itself. This feature has specifically allowed the company to forego some of the negative effects of demonetization.
So, how does it work? After downloading the application and sending some verification documents, users can place their order for products on Amazon and Flipkart (among many others) via the application, and select a payment plan that best suits them. A few days later, their order arrives to their door for them to enjoy immediately.
By extending loans and payment plans to students in need of cash, RedCarpet is able to offer credit and inject liquidity directly into the student economy — a market segment previously overlooked by traditional lenders and financial institutions.
Though other lenders already exist in the space serving college students, such as Slicepay, Krazybee, and Quicklo, RedCarpet stands out among the others due to its unique, data-driven and AI-directed approach.
Currently, RedCarpet is only servicing students in the Delhi area, but it has plans to extend to other parts of the country moving forward as it aims to capture a larger portion of the 97 percent of people that fall outside the traditional financial system.
Given the increased need for alternative lending and the growth of the digital economy, it is no surprise that this Y Combinator and Google Developers Launchpad participant is being met with high hopes by investors.