Digital lending industry in India - statistics & facts
India’s fintech ecosystem has experienced formidable growth in the last few years. In addition to massive demographic opportunities, the country’s fintech environment is a product of regulatory initiatives, a booming funding environment, and growing venture capitalist interest.
Digital lending is a key segment of the fintech sector in India. The Reserve Bank of India defines digital lending as a remote and automated lending process, mainly using seamless digital technologies in customer acquisition, disbursement, recovery, and associated customer service. Although there has been growth in demand for credit, the reluctance of traditional institutions to lend money to low-income credit-deficient segments led to the mushrooming of multiple digital lending platforms such as NBFCs, fintech, and similar entities.
Business growth in the sector is marked by the success of digital lending companies like Lendingkart, InCred, Mobikwik, and Aye Finance. Millennials and Gen Z are also increasingly embracing the idea of micro-credit and buy now pay later services. BNPL, a sub-segment of digital lending, although, in its nascent stages in India, has quickly risen to global prominence. BNPL services can be availed seamlessly by customers at lower interest charges and without a credit history.
Traditional credit scoring models do not adequately capture the consumer's creditworthiness. New-age lenders are using alternative data sources such as utility bill payments and technological integration to assess the risk. Striking a balance between innovation and regulatory compliance remains challenging for the digital lending industry. Currently, traditional credit methods dominate the market. However, owing to low cost, high volume, and scalability, digital lending is expected to surpass the conventional credit industry by 2030, especially for unsecured loans.
Digital lending is a key segment of the fintech sector in India. The Reserve Bank of India defines digital lending as a remote and automated lending process, mainly using seamless digital technologies in customer acquisition, disbursement, recovery, and associated customer service. Although there has been growth in demand for credit, the reluctance of traditional institutions to lend money to low-income credit-deficient segments led to the mushrooming of multiple digital lending platforms such as NBFCs, fintech, and similar entities.
New-age lenders
Digital lending platforms lend not only to MSMEs, but also to retail customers. Their financial services range from small personal loans for buying a new TV, to buy-now-pay-later-loans and educational loans, cars, or even small housing loans. The service enables customers with comfortable and easy access to credit via mobile devices. It also ensures less paperwork and fewer eligibility checks than in a bank branch office. The COVID-19 pandemic further intensified the use of digital lending services in India.Business growth in the sector is marked by the success of digital lending companies like Lendingkart, InCred, Mobikwik, and Aye Finance. Millennials and Gen Z are also increasingly embracing the idea of micro-credit and buy now pay later services. BNPL, a sub-segment of digital lending, although, in its nascent stages in India, has quickly risen to global prominence. BNPL services can be availed seamlessly by customers at lower interest charges and without a credit history.
Challenges and opportunities within the segment
Despite the rapid growth in the digital lending industry, there's a notable gap in access to organized credit. While the sector has witnessed remarkable progress, only a small fraction of the population currently benefits from these services. Factors contributing to this gap include limited awareness, lack of documentation, and historical exclusion from the formal banking system.Traditional credit scoring models do not adequately capture the consumer's creditworthiness. New-age lenders are using alternative data sources such as utility bill payments and technological integration to assess the risk. Striking a balance between innovation and regulatory compliance remains challenging for the digital lending industry. Currently, traditional credit methods dominate the market. However, owing to low cost, high volume, and scalability, digital lending is expected to surpass the conventional credit industry by 2030, especially for unsecured loans.
