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Why Digital Lending is Booming In India?
Why Digital Lending is Booming In India?

June 16, 2023

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Why Digital Lending is Booming In India?

Digital financing has becoming commonplace. Not only are new start-ups entering this industry, but also established businesses are enlarging their operations here. Numbers support this narrative as well:

  • Value of loans disbursement by FinTech firms in Q12021-22 was INR ~30 Bn which has now increase to INR ~185 Bn in Q3 2022-23
  • No. of loans dispersed also increase by 4X to Reach >18 Mn in Q3 2022-23

Why boom in India's digital lending?

Co-lending boom:

A way in which an agreement is reached between banks and non-banks for the shared contribution of credit for lending to priority sectors. After initial losses, FinTech companies like Lendingkart and Indifi Technologies entered the co-lending market, effectively turning into a platform for larger peers to source loans while maintaining a small share of the loan on their books.

Millennials:

  • As per a 2022 study >40%of transaction in lending products done by Millennials
  • >30% of total transactions came from the age group of 18-25%

Easy checking of credit worthiness: With advance algorithms, artificial intelligence, social modelling, data analytics and India’ digital stack it has become much easier than earlier to check the worthiness of an individual. Below are some of the most used techniques to check credit worthiness:

  • KYC verification
  • Credit bureau data assessment
  • Digital footprint tracking
  • Geo location tagging
  • Repayment records

Retaining customers:

  • Sector like investment and broking needs digital credit to retain customer as customers often need to increase their investments. In that scenario offering full financial service platform often make sense.

 

Low-and-grow approach: Initially, lend a small amount to our consumers, and over time, when the customer's repayment history improves, we increase the amount. So, for a lower amount of the repayment is regular then higher ticket size loan can also be offered.

 

Multiple Business Models:

It's not only about giving out loans; it's also about how loans are given out. Businesses have been developed by entrepreneurs to meet the demands of the average householder. Additionally, they provide a straightforward method to make the payment by selecting their app choice from the payment sources instead of UPI or a credit card.

  • Buy now pay later
  • Rent now pay later
  • Marry now pay later
  • Save now pay later
  • Peer to Peer (P2P)
  • and many more...

Product extension by legacy firms:

Lending has some tremendous benefits, which is why numerous companies, like WhatsApp, TrueCaller, Cred, Amazon, and others, have stepped forward to provide loans. Depending on the customer they are targeting, loan ticket sizes vary. Most established businesses have a sizable client base, which has enabled them to gauge the customer's purchasing power. They were able to tailor their lending solution and offer loans to their needs thanks to the customer-specific information they had.   

What to expect in lending business (as per research articles):

  • Digital lending market to grow by ~5x from $270 Bn in 2022 to $1.3 Tn by 2020
  • Digital lending to account for 60% of total Indian FinTech market

 


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