Will digital lending satiate credit hunger?

Reported by: |Updated: November 5, 2018

As India’s digital payments industry is expected to touch $1 trillion mark by 2023, the focus continues to be on lending among NBFCs, microfinance companies, new age fintechs and angel investors. Most of this has been a trial and error mode, finds a report in Banking Frontiers, titled ‘Digital lending: credit bubble or not?’ The lending industry as a whole is grappling with defaults, but the digital lending space has some hope. The report quotes Somya Srivastava, CEO of Prayatna Microfinance as saying: “According to a microfinance study, 50% people in India do not have access to financial services. Most small borrowers remain in the clutches of (traditional) moneylenders who lend at exorbitant rates of 30-60%. This is more than twice the rate that financial services can offer.”

The report mentions that innovation in the payments industry has of late been driven by the government’s Mudra Bank, while Digital India Movement and Aadhaar empowered them. Aadhaar-enabled KYC became a way to facilitate the entry of fintechs into the sector. Large NBFCs adopted the digital model and they could lend to people without meeting them. Digitally, micro-lending has fewer obstacles than larger banks, it adds.

Emphasizing the role of fintechs in solving the failure of traditional lenders in meeting the requirements of the population, the report maintains that India is a credit hungry economy and individuals and growing businesses are constantly looking for funds. They need favorable lending rates, smooth processes and easy disbursement. And none of these the large banks can or want to cater to. They ignore small ticket loans as customer acquisition costs do not make business sense. Lack of infrastructure is yet another impediment.? As such, this is a common problem and fintechs are the possible solution, it adds.



FCBA Features Image


FCBA Features Image