FincFriends Private Limited, a non-banking financial company, has secured 98.5 crore rupee (US$11.5 million) in debt.

The funds will be used to expand operations and enhance credit offerings for underserved borrowers in India.

The funding includes 54.5 crore rupee (US$6.4 million) from other NBFCs and 44 crore rupee (US$5.1 million) through non-convertible debentures (NCDs).

Investors in this round include IBL Finance, Incred Financial Services, Real Touch Finance, Shine Star Build-Cap, and Western Capital Advisors.

Founded in 2018, FincFriends operates the customer-facing app RupeeRedee, which provides short-term personal digital loans.

The company previously raised US$7.8 million in April 2024 through a combination of equity and debt funding.

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🔗 Source: YourStory

🧠 Food for thought

1️⃣ Contrarian capital raising in a retrenching market

FincFriends’ substantial debt raise is occurring during what industry sources describe as “the sharpest slowdown in unsecured credit since the pandemic,” a time when many competitors are actively retreating from the space1.

This approach contrasts with peers like LoanTap, which has paused its personal loan business, and MobiKwik, which has halted disbursals of unsecured loans like BNPL products1.

The unsecured lending slowdown is widespread, with major players reporting significant declines. For example, Paytm’s personal loan disbursals fell from ₹1,746 crore to ₹1,422 crore, while MobiKwik’s financial services revenue dropped by 28% to ₹402 crore2.

Industry data suggests this trend will likely continue, with Fitch Ratings projecting secured, collateral-backed loans will dominate retail credit growth in the coming year, reflecting the market’s shift away from unsecured products2.

FincFriends’ ability to raise significant debt capital suggests either they’ve developed more resilient underwriting models or they’re strategically positioning for an eventual market recovery that others expect only by “Q2 or Q3” of the fiscal year1.

2️⃣ Rising regulatory pressures reshaping digital lending economics

The RBI has intensified its scrutiny of unsecured lending, implementing higher risk weights that directly impact lending capacity and profitability for NBFCs like FincFriends3.

This regulatory tightening has changed the economics of digital lending, with borrowing costs for smaller NBFCs increasing “by close to 200 basis points” over the past two years, according to LoanTap executives1.

The impact is evident in asset quality metrics. Unsecured loans now account for 51.9% of new NPAs in retail portfolios for the first half of FY25, highlighting the credit risks that prompted regulatory intervention4.

Digital lending NBFCs that had been growing rapidly now face significant headwinds, despite earlier projections of 25% CAGR through 2025 and expectations that the segment would reach $350 billion by 20235.

The recent surprise 50-basis point rate cut by the RBI to 5.50% offers some relief, but industry executives warn that “comprehensive policy measures are necessary to fully revive the sector.” This suggests FincFriends will still need to navigate a challenging regulatory landscape despite this funding1.

3️⃣ Financial inclusion mission continues despite market challenges

FincFriends, through its RupeeRedee platform, has consistently focused on providing credit access to India’s underserved populations, having served over 156,000 customers with more than 125,000 loans6.

This mission addresses a significant gap in India’s financial landscape, where unsecured loans account for only 5% of GDP, representing substantial untapped potential despite current market challenges7.

The company’s approach aligns with the broader NBFC sector’s critical role in financial inclusion, particularly as traditional banks remain cautious about certain customer segments, especially those lacking strong credit histories8.

Even as regulatory pressures mount, India’s demographic shifts and increasing financial literacy continue to drive demand for personal loans, which comprised nearly one-third of total personal loan credit according to recent market analyses3.

FincFriends’ persistent focus on technology-driven credit solutions for underserved communities represents the ongoing tension in India’s financial system: balancing necessary risk management with the equally important goal of expanding financial access3.

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