India’s journey toward becoming a $5-trillion economy by 2025 calls for quick, seamless, and steady access to capital for its ever-growing number of MSMEs. A recent report by SIDBI-CIBIL Pulse highlights that the demand for MSME loans has surged by 1.6 times in 2022, underscoring an SOS call for India’s financial institutions to fill the persistent gap.
Today, approximately 40% of MSMEs’ lending demand is still unmet, and here comes the unsung heroes — Non-Banking Financial Institutions (NBFCs) — into play.
Especially the NBFCs gluing finance with tech!
The rise of Fintech has overhauled India’s lending landscape, particularly in the unbanked pockets of suburban and rural areas that are breeding grounds for small and medium businesses (SMBs). With Fintech’s optimized integration in the new-age NBFC loan offerings, SMB owners no longer need to go through the cumbersome process of waiting in long queues and filling out lengthy forms to secure a loan.
Breaking Barriers: Fintech’s Role in Taking Lending to Every Corner of India!
India’s fast-growing Fintech sector has led to a dramatic shift in the lending landscape as legacy systems are getting replaced by robust, AI-powered, and data-driven Fintech solutions.
Using Fintech, NBFCs have added tailor-made loan products with small-ticket sizes and short-term repayment options (including daily repayment options) to their loan portfolio, stitched together to meet the revenue expenditure demand of Indian SMBs.
The present-day lending ecosystem plugs the power of fintech at many avenues, including digital services marketplaces, payment collections, and connecting small businesses with digital solution providers. Further, the integration of India Stack APIs has enabled the development of a unique digital infrastructure, leading to presence-less, paperless, and cashless service delivery pan-India.
In addition, Fintech companies are leveraging the Indian Account Aggregator (AA) architecture to make financial services more accessible and streamlined through sharing of customer data amongst data producers and absorbers, introducing innovation-led products, and providing data safety through encryption.
A lot many NBFCs have kept fintech solutions at their foundation to keep the funding winter at bay. The key players are betting big on early warning predictive systems to foresee the accounts at risk of default across industries, geographies, demographics, etc. NBFCs are also utilizing Loan Management Systems to streamline loan servicing operations, generate comprehensive reports, and ensure regulatory compliance. These systems enhance efficiency, mitigate risks, and improve customer satisfaction by automating processes, centralizing borrower information, and facilitating timely responses to queries.
A heightened risk of delinquencies on SME loans rising with a rise in repayment amounts, an uptick in non-performing assets, and frauds are some of the prevalent issues plaguing modern-day NBFC ecosystem. Further, NBFCs integrating fintech solutions are stepping up to the plate by making use of alternative credit scoring models, built upon AI-ML, and non-traditional data.
Leveraging risk technology platforms and assessing non-traditional data on geolocation, satellite images, business image history, authorized mobile data, key risk indicators, and NLP methods, lending entities are much better equipped to assess risk beforehand and make improved lending decisions even when traditional underwriting data is limited or absent. As a result, serving new-to-credit segments has become possible by offering customized credit assessment models, for the very first time.
Such AI & data-driven models are increasingly becoming integral to the lending processes of Indian NBFCs and will be a key differentiator in the future, especially in building robust relationships by delivering exceptional customer experience.
NBFCs using fintech have last-mile reach and astounding agility to their advantage due to asset-light infrastructure, booming internet penetration, and cost-efficient operations. This enables them to tap into geographies hard to access for larger banks.
With a significant portion of the population lacking access to formal financial systems, the impact of the Fintech sector cannot be overstated. In fact, a recent study found that the digital lending market in India is projected to grow at a CAGR of 54% and reach a market size of $350 billion by 2023. NBFCs adopting fintech as the foundation of their loan offerings are set to play a pivotal role in India’s journey toward sustainable economic growth. India – the world’s third largest fintech ecosystem – is on a quest to revolutionize its lending mechanism.
Considering the blazing pace at which the Fintech sector is evolving to come up with new use cases such as Insurtech, WealthTech, Agri-Fintech, RegTech, and Real Estate Fintech, the future for India’s financial sector looks bright. This is just the beginning as we have barely scratched the surface!
Read More at https://www.financialexpress.com/money/how-fintech-is-driving-change-in-indias-lending-landscape-in-sub-urban-regions/3129803/
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