Digital Lending: A $1 Trillion opportunity for India

By the year 2023, it is estimated that MSME (Micro, Small and Medium Enterprises) digital lending may increase 10-15 times to arrive at INR 6-7 Lakh Crore ($80-100 billion) worth of annual disbursements, creating a window for traditional lenders to go digital.

With the growth of API based data distribution patterns and the technical know-how to analyze large sets of data values, the credit value chain is seeing a transformation while adapting the digital models, making the possibility of real-time, person-to-person digital lending process more efficient. Technological advancements and inclusion like biometrics for authentication, Machine Learning, Artificial Intelligence, e-signatures, and Blockchain may even enable an ecosystem for the process of digital lending which may involve no external or human involvement. Ant Financial introduced the 3-1-0 formula which translates to 3 minutes to decide, 1 minute to transfer the amount and 0 human touch, through which more than 5 Million loans have already disbursed.

With the exponential rise of internet users in India and the electronically available data like tax and legal records coupled with data available through open APIs as a part of India Stack, big data can be leveraged by the lenders to reduce the customer acquisition cost and make efficient underwriting models. With the emergence of Jan Dhan, over 90% of households in India have access to banking services and Aadhar becoming the world’s largest biometric database coupled with mobile phone access, the reach of digital lending mechanism can see a wide horizon in the future.

Key digital lending models in India include:
P2P lending: Digital platforms that connect the borrows with the lenders offering an often-quick turnaround time for low-cost loans.

Crowdfunding: Platforms that allow the investees to raise credit from an open group of investors by simply letting the investees to present their business case and attract investments.

PoS Lending: Financing of online purchases by making use of conventional data like bank statements and unconventional data like transaction history.

Supply Chain Financing: In partnership with NBFCs, targeting merchants using online medium for selling their goods and services by leveraging the merchant data.

Invoice financing: To fulfil the short-term liquidity requirements, working capital credit is offered to the MSMEs, based on their unpaid customer invoices.

Pay later loans: Digital credit like that of a credit card in which small loans are offered with an option to make the payment later.

Mobile lending: Loans given via smartphones to the customers by analyzing the creditworthiness using data values including call patterns, e-money usage, etc.

Digital Mortgage: Mortgage purchases via a digital channel of the traditional mortgage loan process, comparatively reducing the overall turnaround time.

Digital Wealth management
Around 69% of the overall HNI (High Networth Individual) population in India falls in the age group of 30-55 years, who are also the frequent users of social media platforms. With the continuous rise in the number of digital users, a growth of investment can be expected in financial assets in the form of digital investment in categories, including, but not limited to, mutual funds, equities, venture capital including crowdfunding. Wealth management will see a significant shift towards investment through the web or mobile applications.

Vedang R. Vatsa

IT & Management Consultant