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.
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 lesser 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 purchase 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 within the segment
Although digital lending platforms and NBFCs in general set out to fill the credit demand gap, this did not come without shortcomings. Reports of suicides as a result of bullying by dubious lending companies shocked the entire sector. The spread of peer-to-peer (P2P) lending platforms specifically, produced difficulties in regulating the sector, despite the Reserve Bank of India reviewing its master directions on NBFC lending and tightening regulations for unethical lending by fake apps.
Furthermore, there was misuse of consent and data among various app-based lenders. The central bank and the government aim to address unethical recovery practices, data protection, and customer privacy with initiatives such as Daksh, and regulatory measures such as the Digital Lending Guidelines of 2022 and the Digital Data Protection Bill 2022.
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