After the launch of Pradhan Mantri Awas Yojana (PMAY) in June 2015, the concept of affordable housing became active across India. The idea, which was once slow, now aims to help middle-income people in metros and non-metros through such schemes.

But even if there are government initiatives, people often need help to get maximum benefits in terms of suitable schemes, eligibility criteria, competitive interest rates, and ideal loan-to-value ratio.

According to Atul Monga, founder and CEO of Basic Home Loan, there are several reasons why people do not get the best deal when it comes to raising a loan for affordable housing, especially those in tier II and III cities.

Because banks use a fixed-cost and branch-led model, people may have limited options depending on location and loan amount, and lending may not be viable if customer acquisition costs are too high. Also, a property must have sufficient market value if the lender has to recover the investment if it goes unpaid.

To mitigate home loan disruptions in underserved areas, the fintech platform matches borrowers with lenders through a digital marketplace, enables paperless loan application process online, and ensures hassle-free loan approval.

The tech-first mortgage distributor has designed a phygital model to combine digital efficiencies with personalized help from a network of trained direct-selling agents. Customers can collect home loan requests on BASIC's website, through builder partners, or through the DSA network. The hybrid model helps meet the diverse needs of a wide target audience that is not comfortable using online transactions.

This fintech startup has partnered with 90 banks and LAPs (FIs that offer loans against property). It claims to have served 2.25 lakh customers and disbursed home loans worth Rs 10,000 crore. It currently operates in three metros (Delhi, Mumbai and Bengaluru) and several tier II and III locations such as Thane, Mohali and Ayodhya, serving customers across 650 + districts.

The startup's key lending partners include industry leaders like State Bank of India, ICICI, HDFC, Axis Bank, PNB Housing Finance, Piramal Finance, Tata Capital, Bajaj Finserv, IIFL and more.

It earns commissions from transactions made by partner banks, NBFCs and other FIs through the platform. This can go up to 2.25 percent of the deal value, depending on the lender, the type of loan product, and other factors. This helps the start-up to maintain a healthy CM1 of 35% (the margin of contribution 1 indicates gross profit per unit or reduces the cost of the item sold). However, its services are free for retail users who collect home loans through the platform.

The back story

Monga and Kalyan Josyula launched Basic Home Loan in July 2020, during the COVID-19 pandemic when most start-ups had to cut down or shut down their businesses. By then, Monga, a mechanical engineer from IIT-Delhi, had worked in top firms like Policybazaar and Credit Suisse and worked as an investment banker. It didn't take him long to realise that apart from the general credit crunch in the affordable housing sector, the sector was beyond the top tier due to the lack of equitable credit supply.

Terms and conditions are often very complex and need to be clarified, leading to inconvenience and trust issues. Things took a turn for the worse during the pandemic and FIs almost stopped functioning during the months-long lockdowns. New-age fintechs were agile enough, but they focused on smaller personal loans with shorter repayment tenures.

Recognizing the opportunity, Monga and Josyula conducted extensive market research and interacted with potential homebuyers through surveys and interviews. This hands-on approach, along with their unique capabilities, attracted Picus Capital to invest $500K in their venture.

Basic's Playbook for Building Affordable Home Loans

BASIC aims to democratize home loans in the affordable housing sector and such schemes are fast gaining traction in tier II cities and beyond. It has automated the entire application process and backed it up with suitable human intervention to ensure that customers continue to get home loans as hassle-free as possible.

However, its role as a home loan enabler / mortgage supplier is also fraught with challenges. Incorporating / updating lender policies, rules, and regulations all the time is tough, and resets aren't always possible. In addition, it requires high-quality technical skills and unconventional thinking to be at the forefront of building an in-house tech stack for fast and error-free operations.

It can be difficult to operate an asset-light but wide network of home loan agents to achieve desired business results in the unorganized and offline markets. They are not ordinary sales associates and form the backbone of Basic's district-level business and a key component of revenue growth.

However, Monga feels that regulatory compliance at all operational levels and gaining user trust while digitizing its processes is the toughest of all. It has developed a five-point program that aligns with mortgage market dynamics to address these challenges:

Protocol for Finding and Aligning with Suitable Lenders: BASIC conducts a thorough search, analysis, and evaluation to identify a lender whose vision, operations, financial, and other factors align with the startup's goals.

Technology and Compliance: A proprietary Product-Eligibility Matrix (PEM) has been developed to match fintech start-up and loan products with borrower profiles and property details.

On the other hand, its CRM system helps to speed up customer KYC and track each application. Also, the dynamic document rule engine ensures that all the documents are collected and digitally verified by the compliance team. If the loan is granted after due diligence, a basic advisor helps in signing the contract and collects all the hard copies required by the lender. The entire process speeds up the turn around time and the loan amount will be disbursed within 10 working days or 76 working hours.

To ensure compliance with its promises, BASIC has invested in advanced encryption technologies and secure data storage solutions to protect sensitive customer data. It also educates consumers about the benefits of going digital, such as better assistance, faster loan processing, and the availability of a beneficial mortgage.

Trained Agents for Better Customer Service: Fintech's vast network of agents are trained local experts who ensure a steady flow of business by tapping into communities and enhancing customer support by offering personalized services. Basic selects people based on their previous business performances, tech orientation, and alignment with its core business values, such as sales, finance, or real estate.

Is affordable housing still a distant dream in India?

According to the 2011 census, there are 1.7 million homeless people in India. In the absence of data, it is difficult to calculate the current figures. This number is likely to increase as it is the most populous country in the world.

Basic is aware of the ground realities and Monga emphasises the need to make home loans more accessible and affordable if the idea of housing for all in India is to take off soon. "We plan to improve technology-based product development and risk sharing by partnering with more lenders, thereby catering to a larger customer base," he added.

While Picus Capital provided the initial funding to launch Basic Home Loan, Monga says Venture Catalysts + + (India's first multi-stage VC) has been a crucial component of the support. The VC firm has already invested $3.5 mn to grow its business.

"Since the initial funding, we have participated in all our funding rounds. But more than providing capital, its extensive network and industry linkages have accelerated our growth. The Angels and Family offices that we have connected through VCats + + have provided us with funds and offered valuable assistance in overcoming the challenges in our journey. Many of these investors are experienced entrepreneurs who have offered guidance and insights whenever we have faced hurdles during our expansion, "the CEO added.

However, they face the challenge of navigating complex and evolving regulatory landscapes, which can be especially daunting and costly for fintech brands, especially startups with limited resources.

However, the demand for home loans will continue to rise in a country like India, where a home of one's own remains the cornerstone of economic growth and personal gains