Facebook is launching a new program in India to help small and medium-sized businesses secure loans in the South Asian market. This is a move by the company to further expand its presence among merchants. The new program is called Small Business Loans Initiative. This initiative is focused on addressing some of the challenges small businesses face when securing loans.
Facebook said the new Small Business Loan program will allow its lending partners to grant small-ticket loans — ranging from 500,000 Indian rupees ($6,720) to 50,000,000 ($67,200) — at a predefined interest rate of 17%-20% per annum. The new initiative by Facebook would not require small businesses to provide any form of collateral or access fee in other to partake in it.
Facebook mentioned it’s working at “arm’s length” with its lending partners who will be handling all the risks associated with loan payments and determining the eligibility criteria. Facebook says one of the criteria for businesses to be eligible is that such businesses must have advertised on the Facebook app for at least 180 days at the time of application. A loan is expected to be disbursed within five working days once documentation and formalities are completed, all after the acceptance of the offer. The company expects more partners to join the program in the long run. Facebook, on its part, is making efforts for businesses to gain awareness. The social media company has also worked to improve the underlying lending framework such as boundaries for interest rate, engagement responsiveness between the lending partner and businesses (there will be an on-call support system within one day of applying), and ticket size of the credit amount.
Facebook India Head Ajit Mohan in a phone interview said that small businesses in about 200 Indian cities can apply for the loan starting immediately. Businesses identified to be wholly or partially run by women will in addition be able to secure the loan at a special 0.2% reduction rate per annum. This move was agreed on as a way to drive gender participation. This is the first time Facebook is launching a program of this kind in any market.
Last year, According to a survey conducted by Facebook in collaboration with OECD and the World Bank, almost a third of operational small and medium-sized businesses on Facebook in 2020 said cash flow is one of their primary challenges. The company is not monetizing this program says, Mohan. He continues “We believe it is in our self-interest for there to be massive growth in the small business ecosystem in India because as a company we are playing this for the long term. We will disproportionately benefit because a lot of these small business activities will happen on our apps as they grow,” says Mohan. “We are not looking to make money from this program. We don’t have any revenue-sharing agreement. We are not putting any constraint on how this money is spent,” he said. “Frankly, we are also hoping that on the back of a program like this other companies will also create programs so that there is more access to credit in the market. That will be good for us all. There is no transactional objective here.”
This announcement is the latest in a series of efforts it has made to tap into South Asian nation’s small and medium-sized businesses. The firm, which identifies India as its largest market by users, last year invested $5.7 billion in Indian tech giant Jio Platforms to work on, among other things, digitizing small businesses in the country. “MSMEs will play a significant role in reviving India’s economic growth and achieving its vision of becoming more self-reliant. Digital transformation will act as a catalyst for India’s development story going forward, and access to finances will be crucial to this transformation,” said Amitabh Kant, chief executive of government-backed highly influential think tank NITI Aayog, at a virtual conference Friday. He concludes “In this context, Facebook’s Small Business Loans initiative is a big step in the right direction and I’m happy to note that India is the first country where the company is launching such an initiative.”
Olagoke Ajibola is a creative writer and content producer with an eye for details and excellence. He has a demonstrated history of telling stories for TV, Film and Online. Aside from being fascinated by the power of imagination, his other interest are travel, sport, reading and meeting people.
