Leap Finance raises $5.5M to democratize financing for foreign-bound Indian students
Tens of thousands of Indians move to the United States to pursue higher education each year. But like many others who have arrived from a foreign land, they can’t secure education loans or personal loans from the banks at interest rates on par with those levied on local students.
The reason why these students — or anyone else moving to a different country — have to abide by a higher interest rate is because they don’t have a credit score with any local credit bureau. So for banks and other financial institutions, there is more risk when they engage with foreigners. So they charge more.
An Indian student studying in the U.S., for instance, borrows money at an interest rate over 13%, compared to their local peers who can secure the same amount of credit, if not more, at less than half of that interest rate.
Bangalore and San Francisco-based startup Leap Finance, which was founded last year, announced on Tuesday that it is tackling this very challenge, and has started to serve Indian students in the U.S.
Indian students in the U.S. can secure financing from Leap Finance at an interest rate of between 8% to 10%, said Arnav Kumar, co-founder of the startup, in an interview with TechCrunch.
The startup said it is underwriting the loans based on several alternative and derived data points to assess a student’s future income.
Kumar and Vaibhav Singh, the other co-founder who previously worked at financial services groups InCred and Capital Float, arrived at the idea of creating Leap Finance partly because they too faced similar challenges in foreign markets.
Leap Finance founders pose for a picture
“It affects all sorts of things. You often end up with a credit limit on your credit card, for instance, that is only a fraction of your earnings,” he said.
Eventually the startup plans to offer a range of financial services and serve as a neobank.
Serving credit needs of students is a big addressable market in itself. “Indian students make up 25% of a class in many top graduate programs in the U.S. These are smart, hard-working students who got in the best programs and have a great future ahead. Yet, the education loans they avail of are at interest rates twice as high as their American peers,” said Singh.
“This disparity stems from systemic inefficiencies and lack of innovation. We have innovated on multiple dimensions — technology, financial structuring and risk — to bring down the interest rate and improve customer experience,” he added.
The startup, which currently employs more than two dozen people and is hiring for a number of technology roles, began to disburse loans in recent weeks and said more than 100 students are already benefiting from the service.
The startup said it is currently serving Indian students in the U.S., but plans to serve such Indian students in Canada, the U.K. and Indonesia, where the interest rate could go as high as 20%, said Kumar, who previously served as an Associate VP at VC fund SAIF Partners .
As part of the announcement, the duo said they have raised $5.5 million led by Sequoia Capital India. Bhupinder Singh, chief executive of financial services group InCred and Kunal Shah, founder and chief executive of financial services firm Cred also participated in the round.
In a statement, Ashish Agrawal, principal at Sequoia Capital India, said, “Indian students studying abroad today spend $15B annually and we estimate an annual credit need for >$5B against this. This attractiveness of the market, strong founder-market fit and Leap’s mission-driven team is what led to our belief in an early partnership with them.”