Digital Lending in India: Opportunities and Threats

By M. Sandeep, August 13, 2022

What is Digital Lending?

There is a steady rise in digital lending in India with several start-ups and NBFCs. It  permits borrowers to apply for loan from any internet-working device at any location. Customer can apply for any business loan products such as credit cards, business loans, mortgage. The entire process is conducted digitally where customer has no need to send all papers he just have to enter OTP’s.

It's Opportunities:

Banks and NBFCs are refusing to provide the loans for the salaried individuals in Tiers 2,3, and 4 cities  due to lack of credit history or for not being prime customers. Digital lending is expected to grow rapidly with loans to small and micro enterprises. Smartphones has a huge role in the adoption of digital avenues. People in the remotest areas are capable of making transactions easier through smartphones with the internet, which reduces the transaction cost. Innovative products offered by the start-ups are enhancing the customer experience and reducing the transaction costs. During COVID-19 many people applied loans digitally by sitting at home that contributed to the digital lending market growth. Fintech lenders are providing the loans to customers with minimal paper work and quick processing. For this they are adopting AI, ML, data analytics. These AI and ML will check creditworthiness and risks involved in lending by analyzing the data of customers.

 

 As per a PWC report, the digital lending market in India will have a growth rate of 48% by 2023. The benefits of digital lending are Easier loan disbursement, easy to capture applicant detail, guarantees quick decision making, increases efficiency, better lending consistency and better customer experience. Digital lending is more risk appetite than banks as it is lending micro and short-term loans and helping lower-income individuals to build a credit history with small loans, without falling into debt. Internet is helping each and every person to apply for the loans digitally.

It’s Threats:

 But applying loans digitally is having many threats. Majority of the people in India depend on lending apps for various purposes and people are facing threats such as manipulative practices, illegal lending and mounting threats. It is difficult for the customers to protect them from these threats.

Due to this, Technological companies and regulators have come together to identify the apps responsible for threats. As there is high demand for credit , people are not meeting their needs with the traditional financial systems so, many started using digital lending apps and unknowingly falling into the threats. Google blocked hundreds of apps from play store to protect borrowers. Officials in other countries shutting down the start-ups promising easy cash. The platforms lending the loans to customers must show the lending licenses and they cannot ask for full repayment in less than 60 days. Reserve Bank of India started removing the unregulated lenders and punishing with severe penalties on non-complaint apps. For the sustainable digital lending growth financial institutions in India must focus on Re-imagining the customer experience, developing data-driven lending programs, adopting automated decision making and AI and ML. By digital we no need to travel, no need to submit any forms, no need any signature. It’s a “ PAPER LESS” means we are saving environment and “COST”.