In September 2018, Capital Float recorded its best month ever — a record 200+ crore in loans disbursed, acquisition of Walnut, and the launch of our online checkout financing product. We were firing on all cylinders. Until a few days later, when we ran into the perfect storm.
First, the IL&FS-led NBFC crisis dried up liquidity overnight. Then came the Supreme Court’s Aadhaar verdict which severely disrupted our consumer-loans business. Finally, a prospective investment fizzled out at the eleventh hour.
We hunkered down and went through a long and wrenching transformation in the months that followed (read about it here). Come Q4 FY20, we were leaner, meaner, fitter and ready for the next phase of growth, this time with 35% reduced NPAs, 35% reduction in costs, 50% reduction in overall cash losses and USD30 million cash in the bank.
We barely went two months before Covid-19 hit the country. Within a matter of weeks, the entire country was on lockdown. Confined to our homes, we started to see how Covid-19 not only affected people but also put millions of businesses into the ICU. But this time, we were ready. The last 12 months had not only made us battle-hardened for the fight ahead, but now enabled us to move and act quickly because we already had a playbook to follow.
The battle against Covid-19 at Capital Float is being fought using some of these lessons, many of which find parallels in the broader fight against the spread of the virus in India today:
1. Lockdown
As the virus started to spread, our first priority was to make sure that our employees and their loved ones were safe and sound. We immediately stopped all travel and enforced a mandatory work from home (WFH) policy. Next, we put a business continuity plan (BCP) in place for a possible full-lockdown scenario, as many of our teams were dependent on office infrastructure. Within a few days, these “worst-case scenario” drills proved invaluable as the entire country went into lockdown.
Putting aside a few minor hiccups, we were able to move to 100% WFH relatively seamlessly. Finally, to ensure the financial and mental well-being of our employees, we bought Covid-19 insurance cover for all employees and their dependents, made early salary payments, and also started a Covid-19 helpline to provide all possible assistance.
Further, with the entire country being locked down, economic activity has also ground to a halt. People are living a frugal existence, focusing on the essentials. To conserve cash, we are also undertaking minimal disbursals and have stopped all discretionary spends. Though we could never have anticipated this last year, the actions we took to make the company leaner and create a culture of frugality are now proving invaluable. The old adage never stood truer than in this situation — “turnover is vanity, profit is sanity, but cash is king”.
2. Flatten the curve
The cornerstone of the Covid-19 response worldwide has been widespread testing, isolation, and contact tracing. We have tried to apply the same methods to our financial models during this period. We stress-test our models on a weekly basis across all possible scenarios. We slice and dice our loan portfolio constantly to understand and estimate the impact on our borrowers.
We deep dive into key metrics which are likely to have a major impact on business in the current environment. We are preparing for the worst-case scenario, even as we join the whole world in praying for a quick recovery. Just as all hospitals are building advance infrastructure for ICUs and ventilators, we are building up sufficient collections capacity to ensure our NPA curves are also flattened when we open up post lock down.
3. Prepare for uncertainty
Governments across the world have brought about unprecedented changes in the fight against Covid-19. The first major regulatory step we saw in our business was the introduction of a loan repayment moratorium for borrowers.
While undoubtedly a positive move by the RBI to bring relief to small business and consumers, it will put significant pressure on lenders as it is unclear whether there will be a moratorium for NBFCs as well.
We are extremely lucky and grateful that the previous NBFC liquidity crisis taught us to always keep several months of our liabilities in cash at any point in time. Seeing multiple black swans in the past year taught us the hard lesson to always be prepared, whether in the context of business or regulatory uncertainty.
4. Go digital
In this period of social isolation, technology has kept the world connected, informed and productive. As a tech-first company, it is our duty to help and we are trying to step up. A few days into lockdown, we launched a feature in our Walnut App called ‘Find a store near you’, to help people struggling to find essentials near them during this lockdown period. This feature is a real-time tracker which guides users to essentials stores open in their area along with an indication of the type of items available.
We are also providing a Covid-19 insurance cover for all our users via Walnut, through a fully digital sign up process. Finally, even though we have slowed down disbursals, we continue to lend for essential purchases through our checkout financing option on Amazon, which is mostly interest-free for both existing and new customers.
In the coming weeks and months, we hope to do more. Last-mile credit delivery to SMEs and consumers will need to be scaled back up if the economy is to recover quickly. In a socially distanced world, 100% digital lending could become the rule, rather than the exception, from now on.
5. Stay home, stay safe, but stay connected
It is ironic how even as we are physically isolated from each other, we are closer to family and friends via phone calls, WhatsApp, video calls, social media etc. In much the same way, at Capital Float we are reaching out to all our stakeholders — borrowers, app users, partners, investors and employees on a regular basis.
From weekly board calls, to fortnightly townhalls with employees and regular communication to borrowers and lenders, we are striving to communicate with complete transparency and reassure stakeholders that when this is over, Capital Float will not just survive, but thrive.
Last but not the least, we all need to do our bit to flatten the curve. The world is faced with an enormous challenge which is growing at an exponential rate. There is no magical, easy solution.
In the end, it boils down to our grit, determination, and perseverance. We will not back down, and we will face this challenge head on. We may come out on the other side bruised and battered but smiling. As Taleb, author of the The Black Swan and Antifragile wrote, “The resilient resists shocks and stays the same; the antifragile gets better.” We aspire to be such a company through this crisis.
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