The Changing Landscape of Lending

According to the recently released FACE report, fintech lending volume doubles in FY 21-22

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Fintech lending companies doubled the disbursements in FY 2021-22, by giving 2.66 crore loans crossing INR 18,000 crore, says the FACETS report released by Fintech Association for Consumer Empowerment (FACE), an industry association and self-regulatory body for fintech lenders set up as a non-profit company in Sep 2020.

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The report uses data from FACE member companies, which represent more than 50 per cent of the digital lending market in India. The report indicates that digital lenders have successfully penetrated the Indian market far and wide, bringing many different consumer segments, both salaried and non-salaried to the fold of formal credit. For FACE member companies, nearly three fourth of the loan value disbursed in FY 21-22 were through the own-balance sheet and the remaining in partnership with other regulated entities, usually NBFCs.

The report also revealed that 98 per cent of loans were categorized as personal loans, which individuals take for many diverse use cases such as business, emergencies, consumption, and education among others and that 80 per cent of all loans disbursed were short-term loans with less than 6-month loan tenure. It also mentioned that the average is a little over INR 14,000 but varies across lenders.

The fintech revolution shapes lending

Digital lending is one of the most funded business models with fintech. In the last few years, it has grabbed funding from leading investors. Some of the startups in the space include LendingKart, Slice, KreditBee, CredAble, MoneyTap and Credavenue. Tech has helped these players address the lending gap that has existed in India. After the pandemic, fintech lending players have been further stepping up their expansion plans.

"Trends from the report show the role of fintech lending in serving young customers from low and middle-income segments by providing customized, convenient, cost-effective credit. We firmly believe that a progressive regulatory and policy framework, focus on customer-centricity and market innovation will continue to facilitate sustainable growth of the fintech lending industry to support individuals in addressing the opportunities and challenges coming their way," said Sugandh Saxena, CEO, FACE.

Buy Now Pay Later (BNPL) is also a business model that has picked up pace in the recent past. BNPL is a way consumers buy a product and make staggered payments in a time period of say 10-15 days and in some cases as no-cost equated monthly installments (EMIs) for three to six months. BNPL products are easily accessible at points-of-sale or e-commerce checkout and do not require any extensive paperwork. However, if a consumer fails to make the payment on time, interest charges are levied. Some of the players in the space include ZestMoney, Ezetap, KredX, Amazon Pay, LazyPay, Simpl and Slice, among others. BNPL is being considered a win-win proposition for all in the ecosystem, say experts. The seller gets instant payment and increased cart value, increased conversion rates and overall footfall and the consumer gets affordable solutions that increase her purchasing power. Thus, the BNPL space has been growing every day.

MSME lending also opens up huge opportunity for players in the space, especially after the increased adoption of digital by MSME since 2020. The sector contributes to more than 37.5 per cent of India's GDP, but remains highly underserved. According to Research and Markets, the credit demand in the MSME space is $490 Bn as per the RBI data, while the overall supply from formal sources stands at $192 Bn.

Thus companies are ramping up their offerings for MSMEs. For instance, Lendingkart offers multiple E2E solutions for banks and NBFCs to extend credit lines to small businesses. Sachin Bansal-led Navi is also heading towards its IPO at the moment. It filed a Draft Red Herring Prospectus (DRHP) on March 12 and plans to raise INR 3,350 crore through the IPO through a fresh issue of shares. Navi group offers a range of financial services and products such as Personal Loans, Home Loans, Retail Health Insurance and Mutual Funds. India's 100th unicorn, Open has built Asia's first digital banking platform for SMEs, startups, and freelancers and has increased its customer base to 2.3 million in the last 12 months.

According to various reports, the digital lending sector is expected to cross the $350 billion valuation by 2023. This will be enabled by newer technologies that will allow an even more seamless and safe way of lending.