Borrowers prioritize repaying home loans over consumer goods in downturns
Rangarajan Krishnan · Understanding the Trillion-Dollar lending market in India ft. Rangarajan Krishnan · Mar 6, 2023 · at 18:08
Rangarajan Krishnan explains the strategic insight behind Five Star Business Finance pivoting from consumer durables to secured MSME lending with home collateral.
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“Anybody who takes a loan has an intention to repay the loan. That intention stays good as long as the times are good. But everybody goes through good and bad times. I think when the times are bad, the same person behaves very differently for different products. The company has seen that, you know, when you are, let's say, financing a refrigerator, or a washing machine, or a microwave oven, If times are bad, at least you will go and say you repossess the washing machine. What do you do with repossessed washing machines, right? You are not going to get your money back. But probably the customer is not going to behave if let's say the collateral that you have taken is something which is more serious in his life. Something which is more emotionally attached to his life. Like house. Like a house. So that is where the thought of Mr. Patti came in. That while the customer segment that Five Star was serving was always good, and we wanted to continue on that. But when it comes to product and the business model, we'll have to alter it slightly. So give them a product which is more important to them, which sort of really helps them go to the next level of their life. So when they want to start a business, nobody trusts these people. So give them, don't give them 20, 30,000 rupees. Give them three lakhs. Give them five lakhs. Remove them from the clutches of a money lender. Give them that money. But at the same time, ensure that they stay absolutely serious till the last EMI. To that, if you take house as a collateral, they are not going to be, you know, behaving to you differently during a good time or a bad time.”
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