App-based cab companies lure drivers through easy loans

For years, Yashpal Yadav use to work as a driver of a foreign tourist bus in Kolkata, earning a salary of nearly Rs 15,000 per month. A few months bago, Yadav heard of new cab operator in the city, Uber, where a few of his friends could earn as much as Rs 40,000 per month. However, to be a Uber driver, Yadav needed to own a vehicle.

"I didn't have the necessary money to buy a car of a model which would meet the specifications of Uber," says Yadav. That's where Uber's vehicle financing service stepped in. Yadav managed to get a loan from Shriram Transport Finance with a down payment of Rs 60,000.

With a net monthly income of around Rs 40,000 per month, Yadav now is a driver-entrepreneur, and an owner of a Swift Dzire.

With app-based cab companies gaining popularity, a new business model is bringing drivers, financiers and cab service providers to a unified platform. In effect, a number of drivers are taking loans to become business partners with app-based transport companies, which in turn, act as facilitators for the loans.

Now with the driver-cum-entreprneur model gaining popularity, demand for loans is also increasing.

"Over the last six months, we have been getting increased references for loans from cab providers. It acts as a platform to bring together the vehicle owner, the service provider and the financier, along with an additional comfort for lending," said Umesh Revankar, managing director and CEO of Shriram Transport Finance.

Recently, Ola, an app-based cab provider, partnered with State Bank of India to extend a vehicle financing programme, the Ola Pragati campaign. Under the scheme the drivers on the Ola platform can enroll with daily repayment scheme, as against the current practice of an EMI. " This is a unique model specially targeted towards the drivers who don't naturally have a large savings, hence find it difficult to pay a monthly EMI. Unlike normal car loans, this covers 90 percent of the cost of the vehicle, including road tax and registration charges," said Anand Subramanian, director at Ola.

Ola charges 20 percent commission for every ride.

Similarly, Uber has been recommending drivers to companies like Shriram Transport Finance, AU Financiers, Toyota Financial Service in order to give drivers easy loans.

"Lots of drivers can't own a cab because they don't have access to funds. Under the vehicle financing scheme we make it easier for drivers to get loan and own their cabs," said Neeraj Singhal, head of expansions at Uber India, recently.

Radio taxi operator, Meru Cabs, which does not follow the aggregator model and instead owns its fleet has decided to tweak its model. After a strike by the drivers in 2013, Meru changed its model where now it encourages drivers to own their cabs.

"The app-based cab providers do not want to own a vehicle. They want to work on a technology platform. In most cases, they work as partners with drivers. The companies, which have informal tie-ups with finance companies, provide a letter of support to drivers to get easy loans. The model is gradually picking up," said Jaspal Singh, co-founder of Valoriser Consultants.