Customized financing models to electrify India’s three-wheeler segment

Owning vs Renting the electric 3W from a driver’s perspective

Challenges with electric three-wheeler financing

Innovative financing solutions

Three-wheelers provide an economical last-mile mobility solution to India’s masses while providing means to livelihood to more than 12 million drivers.

Electric 3W segment registered a growth of 21% during 2018-19 with 630,000 units sold as against 520,000 in 2017-18. A study by CRISIL indicates that nearly half of all three-wheelers sold in India (excluding e-rickshaws) by 2024 will be electric.

While the price for a Lithium-ion battery powered e-rickshaw (post subsidy) is 20-25% lower than ICE/CNG autos, the acquisition cost for electric autos is expected to be broadly in the same bracket. However, the running cost for electric 3Ws is around 40p/km as compared to Rs. 4/km for ICE 3Ws and Rs. 2-3/km for CNG based 3Ws – enabling drivers to save approximately INR 250-300 more every day.

When it comes to electrifying India’s transport, three-wheelers are definitely a low hanging fruit.

Owning vs Renting

Majority of the three-wheeler drivers rent the vehicle and pay daily lease from their earnings. 

Sameer Aggarwal, founder of Revfin (a fintech company offering loans for electric three-wheelers) informs – “Over the long term (3 years or more), owning the vehicle is a far superior option. Over a three year period, the total cost of ownership is about Rs. 55,000 cheaper for owning compared to renting. If the driver decides to share the rickshaw with one more user to run double shifts, then even in the first 24 months, owning is better. Moreover, in most tier 2 and tier 3 towns, renting is not an option as there are no aggregators present.”

Three Wheels United (a social enterprise that helps drivers secure loans for purchasing electric three-wheelers) estimates that ownership will result in total additional savings of nearly INR 150,000 over the lifetime of the vehicle.

Owning the electric 3W presents a better proposition for the drivers, however, many find it extremely difficult to secure financing for the purchase.

Also Read: EV Charging Infrastructure: Is the Government getting it right?

Jeenit Mehta from Jumpstart Autoelectric, a dealer of Kinetic Green Electric Mobility in Chandigarh shares that the availability of finance is a big impediment. “Of the 50 odd enquiries we generate per month, only 3-5 are converted through finance via nationalised banks because of loan processing gestation period, documentation hurdles, and high downpayment requirements; which make the entire buying process tedious. Also, private banks have kept out of it and other small financers have unviable rates of interest. There is a dire need for suitable financing options for this segment, especially for the now proven lithium battery option,” he adds.

The current lack of financing makes many opt for CNG autos vis-a-vis an electric 3W with the former having wider and quicker financing options.

Why is electric 3W financing broken in the first place?

EVreporter’s research indicated that there are a number of factors at play here:

1. Bank instruments like Mudra Loans finance up to 80% of the cost, requiring the driver to pay up the rest. Micro-finance institutions can not finance more than INR 75,000 per borrower for the first loan cycle, which is about 40% of the cost of an electric rickshaw.

2. “Three-wheeler loans by banks have a high rate of default – up to 30%”, says Kevin Wervenbos – Co-founder at Three Wheels United. The risk associated with the loans along with small ticket size, high cost of management, and lack of clarity on the resale value of the asset discourage a lot of banks and financial institutions.

3. The complexity of loan appraisal of the candidate in the absence of formal financial history. Conventional loan appraisal systems rely heavily on borrower’s financial data and work well with formal sector employees. “These appraisal systems, in case of lending to people engaged in the informal sector like auto-rickshaw drivers, fail to provide a just evaluation of the credit repayment capacity of the borrowers and thus work as a barrier to lending to such borrowers”, adds Kevin.

4. Many loans initially given out for electric 3Ws turned to default party due to poor performance of lead-acid batteries that would need replacement every 8-9 months. Each replacement set the driver back by nearly INR 25,000 (INR 30,000 – 35,000 for the new battery minus scrap value of INR 8,000-10,000). In many cases, the Chassis of the vehicle would get severely damaged due to water leakage from the lead-acid battery, rendering the vehicle unusable after a couple of years. This early demise of the vehicle made it hard for the financing institutions to ascertain the life of the asset.

Side note: The price difference between a lead-acid battery e-3W and Lithium-ion e-3W with similar configuration can be between INR 45,000 to INR 60,000. However, Government incentive (Rs. 40,000) under FAME II is applicable on Lithium-ion battery vehicles. Players like Kinetic Green, Mahindra and Piaggio offer FAME II qualified electric three-wheelers with Lithium-ion battery packs that present a better proposition for the driver as well as financing institution, given advanced battery chemistry that can charge faster (run more kms per day) and a battery life of more than 4 years.

Tech-driven financing solutions to the rescue

It is clear that conventional loan instruments do not offer suitable financing options for three-wheelers. The sector needs solutions that cater to the dynamics of the segment.

Players like Three Wheels United and RevFin are stepping up to the fore with their tailored solutions to get past usual barriers that come with financing low-income groups. These companies aim to operate a profitable lending business while making a positive impact on the lives of auto-drivers as well as the environment. 

Screening Process for Loans

In the absence of formal financial indicators, the appraisal process is conducted with an aim to understand the ecosystem of the drivers through interaction with members of the community and assessment of household earning profile etc. – a process that mimics MFI loan appraisal.

Sameer’s company RevFin uses biometrics, psychometrics and gamification to make lending decisions for its customers. “We use biometrics to authenticate users as well as other people in their community willing to vouch for them. We apply a psychometric test (jointly developed with IIT Kharagpur) on all our customers to help determine intention to repay the loan”, informs Sameer.

Three Wheels United uses behavioural data collected through a mobile app and face-to-face conversations to estimate the reliability of each candidate and tailors the repayment plan according to the earning profile of the customer. “Our loan instrument provides up to 100% funding without any collateral requirements and low-interest rates. Having processed more than 2400 loans so far, our default rate is less than 1%,” says Kevin.

Managing Repayment

The repayment of the loans also has a community element to it that incentivizes timely payments through gamification and social recognition. These companies make use of data collected through telematics devices in the vehicle to track the usage, monitor speed behaviour and ensure the security of the vehicles.

Screening and repayment processes, as well as IoT devices fitted in the vehicles, help these companies collect relevant data on customer behaviour. The data is leveraged to enhance decision making using machine learning and AI-driven algorithms.