The lenders have modelled themselves like microfinance institutions. They get funds from banks and other funders at interest rates that are slightly above the prime lending rate, and they charge their borrowers an interest rate of 18-24%. The lenders say the default rate is in low single digits.
However, for the lenders, this is a risky business, warned Samir Bhatia, founder and CEO of SMECorner."There is no security and no way to monitor the end user.These sellers operate out of homes and there is no permanency of business," he said.