Digital Lending: Serving the Underserved
India is one of the world’s fastest-growing Fintech markets.
The Indian Fintech industry was valued at $50–60 billion in FY20, according to an Invest India analysis, and is expected to expand to over $150 billion by 2025.
Fintech transaction value is expected to expand at a CAGR of 20% from $66 billion in 2019 to $138 billion in 2023. With this expansion rate, the sector has penetrated into Tier-II and Tier-III cities, along with the metros.
The Indian economy is built on the backbone of small and medium businesses (SMEs). India has almost 63 million, which is the second-largest number of SMEs in the world. They account for 29 percent of GDP and 49 percent of exports while employing over 110 million people.
An inequitable lending system has hampered a huge number of SMEs in the country. India’s SMEs are currently facing a loan deficit of $330 billion. Most SMEs, particularly in Tier 2 and Tier 3 cities, lack adequate credit and liquidity to meet even day-to-day working capital requirements.
Legacy modes of operation and lack of technology tools to get loans are two major reasons holding SMEs back in smaller cities. The ubiquitous use of smartphones gives an enormous opportunity to over 90% of small businesses to adopt smart technology.
According to a BizFund survey, only 16% of MSMEs in India receive formal loans, leaving over 80% of them credit-starved. As a result, many of these businesses turn to unofficial credit sources, raising the danger of credit fraud.
Lenders can map borrowers’ creditworthiness using alternative data sources such as e-commerce payment history, social media activities, and other spending patterns, bringing more people into the formal credit system and assisting in the financial inclusion of India’s underserved population.
The digital lending market is expected to rise from $100 billion in 2019 to $350 billion in 2023, according to industry forecasts. While digital lending platforms have seen increasing adoption of their products in recent years, there is still a huge untapped possibility for digital lending companies to expand their reach and deliver enough credit to the last mile.
Here are some of the important variables that will contribute to this expansion.
Also Read:- Why are SMEs considering Working Capital Finance for Higher Growth?
Digital Adoption Boom
The emergence of digital apps and platforms, as well as the onset of the COVID-19 pandemic, have aided this digital transformation.
Consumers, who are new to credit, are fuelling the digital revolution in Tier 2 and Tier 3 cities by looking for formal lending institutions to meet their credit demands.
Integration of innovative technology
New-age technologies and algorithms are being used by digital lending players to streamline and automate the entire lending process, providing borrowers with a seamless and efficient experience that helps to establish partnerships.
Artificial intelligence and machine learning help lenders increase client engagement by optimizing the process through predictive analysis. It also allows for frictionless customer onboarding through customized solutions, as well as assisting lenders with fraud detection early on.
The Governmental Assistance
The government has given the digital lending sector a major boost by introducing initiatives, such as the recent proposal to form a working group to promote a safer digital lending ecosystem. By bringing transparency to the digital lending sector, a huge portion of the population will access formal banking and credit, eliminating the informal actors.
CONCLUSION
India’s digital lending sector has enormous potential to help the country’s credit-starved people gain access to credit and foster financial inclusion through last-mile connectivity. We are on the right track to achieving our aim of a digitally empowered Atmanirbhar Bharat, thanks to new generation technology combined with humanitarian aid.