In this blog we’ll be covering the story of Niro, which was backed by Kunal Shah- the CEO and the founder of CRED(which is one of India’s biggest Fintech companies). Niro recently announced its closure and revealed the issues it faced and risks it bore. Let’s find out what happened, shall we?
What Was Niro?
Niro began its operations in 2021, it was cofounded by Adithya Kumar (Founder and CEO)and Sankalp Mathur(co-founder and CRO). Niro was embedded in the lending business. But it decided to not be a standalone lender and decided to partner up with consumer internet platforms. It allowed them to offer credit services to their users, while working with banks and NBFCs behind the scenes.
To understand this better- Niro partnered with these platforms to basically convert large consumer apps into financial distribution channel.
Over its lifetime, Niro claimed the following:
- As reported by Money Control– it disbursed 200 million in loans. Furthermore, it built over 30 partnerships with platforms as well as lenders.
- As reported by INC 42– It secured about 170 million users. And it had built $100 million in assets under management just within 2 years.
From the above numbers we know that Niro’s mission was bold. It wanted to scale embedded credit across many platforms through its partnerships. Additionally, they wanted to reach users where they had already transacted, and use data to minimize default risk.
Reasons Behind Niro Shutting Down
- Regulatory Pressure on personal lending– India’s rules in the recent have become very strict with respect to digital lending. Niro’s cofounder highlighted “regulatory pushback on personal lending” as a major hurdle. This has been one of the major reasons for the startup to raise capital.
- Deteriorating Credit Quality– The reality is that when the economy of a country is facing financial stress, the likelihood of doing a default at least with respect to paying back of loan increases. And this is one of the reasons why Niro faced growing risk in its loan portfolio.
- Other reasons behind Niro’s shutdown was- funding crunch: even with a good business model they could not raise funds. Additionally, in response to the stress the company decided to pivot, but that coincided with a capital shortage.
Key Lessons From Niro Fintech’s Shutdown
1. Lending is Inherently Risky- even with Scale
Every company in fintech should have robust risk hedging- which includes reserves and stress- testing. Because the truth is maybe in the beginning loan defaults may be less, but once the company starts growing, the risk intensifies.
2. Regulatory risk must be baked into models
The thing about regulatory sectors like fintech is that rules change rapidly. So every startup must design its product to be flexible so that it can easily adapt to changes.
3. Capital timing matters
No matter how good your product might be, having capital is a must. Because what happens with markets is that when they retract many growth bets collapse.
4. Pivoting under pressure is harder
There’s a lot that needs to be seen and considered. Deciding to pivot at the wrong timing i.e., when facing financial stress- the company may not have may not have time or resources to see it through completely. Hike the messenger faced something similar when it tried to pivot.
What’s Next for the Founders & the Space
Adithya Kumar who was the founder and CEO of Niro has decided to take some take off to decompress after the intensive years of work. While he also showed gratitude to the investors, his team and partners.
The regulatory frameworks are going to evolve and now founders and investors are going to be on the look out. There’s going to be adoption of conservative underwriting, higher capital buffers, and stronger compliance setups.
