The rise of fintech has revolutionized the financial landscape in India, leading to significant changes in the credit market. India has secured its position as the third-largest fintech ecosystem globally, with the Indian fintech market projected to reach $150 billion expansion by 2025. The growth of fintech in diverse segments, including digital lending, payments, insure-techs, and wealth tech, has played a crucial role in this transformation.
Initially considered competitors to traditional BFSI companies, Fintechs have now established symbiotic collaborations with these conventional institutions. Among the fintech segments, Non-Banking Financial Companies (NBFCs) have embraced digital operations, which have proven beneficial for them in several ways. Digital lending, in particular, has played a significant role in the long-term viability and profitability of NBFCs
As it continues to evolve, it becomes crucial to address key aspects that will contribute to its long-term viability, and digital lending plays a big role in this. These considerations encompass identifying sustainable practices that can sustain the growth trajectory of NBFCs and exploring new business opportunities to enhance profitability. By addressing these factors, this industry can solidify its position as a transformative force within the financial sector, which is possible just with digital lending developments.
FlexPay, an NBFC registered with the RBI, considers digital lending to be a boon for NBFCs as a whole. CEO Mr. Anil K Pinapala has stated that digital lending has worked wonders for improving the credit reach to underserved and unserved customers, including those served by NBFCs and other financing bodies delivering unsecured loans. The multi-fold expansion of digital lending has been possible mainly because it has improved the reach, efficiency, and speed of credit delivery.
Challenges Existing in the Credit Market:
Digital lending has eliminated various challenges in the credit market
- Benefiting individuals who faced unavailability of credit due to low income
- Denied or restricted access to credit based on employment type or employer group
- Absence of credit tools for people living in tier 3 and tier 4 cities.
NBFCs have taken steps to address these challenges by providing digital lending solutions, enabling underserved businesses to obtain credit. Leveraging technology, these innovative firms assess the creditworthiness of borrowers and offer much-needed financial support. This development has opened doors for previously marginalized populations, enabling them to access the credit they need to thrive and contribute to the broader economy.
Measures Taken to Beat Challenges
Financial inclusion and innovation have helped in beating these challenges and improving the credit reach to unserved and underserved populations. The following are the distinctive features of digital lending that aid this process-
- Variety of products coming into existence.
- Various ways the products can be used.
- Ability to go beyond to provide services to people.
More than 700 million people are formally or informally employed in India. However, accessing credit has long been a major hurdle for them. Despite their impressive growth records, financial institutions have historically underserved a large section of the population, leaving them with limited access to formal credit. The lack of credit access for them can be attributed to various factors, including their limited credit history or being relatively new to the credit ecosystem, which often makes it challenging for them to secure bank loans.
Although we have reached another hundred million, over existing customers, the potential of digital lending is not fully used until we are able to tap the remaining section. FlexPay is trying to tackle this with its relaxed eligibility criteria offered on its credit product.
The sustained progress of the Indian economy relies on fostering inclusive growth and creating opportunities. Digital lenders are playing a pivotal role in achieving this by enhancing inclusion and formalizing the credit process. Through their efforts, information has become more accessible, transparent, and streamlined, eliminating unnecessary complexities and hurdles.
Knowing the Right lender
Since many and many products are now available in the market it sometimes becomes tough for customers to know which is the right lender for them. The RBI guidelines bring clarity to the lending market and now customers can easily understand whether the lender is registered or not. Following the RBI guidelines, for lenders like FlexPay, it has been possible to use digital lending in an organised and secure way to provide credit.
Also, the most important factor in India with respect to innovation and credit underwriting is a government-driven infrastructure. With concepts like account aggregator, we are about to get a lot of data related to tax and banks that too on a real-time basis. This data will help us deliver customised loan options to various sections of the customer base.