Inside This Article
India’s financial landscape is changing rapidly, with the dominance of digital lending on the rise. In the future that had dawned for fintech startups as much as it had done for established financial institutions, credit was offered expeditiously and efficiently through digital lending. The Indian digital lending market is likely to grow at a CAGR of 36% during 2023-2028 and reach $515 billion by 2028. (Boston Consulting Group). It speaks enough for the exponential growth in the market, which may make it the most profitable setup for a digital lending platform.
We are going to walk you through the process of setting up a digital lending business in India. From understanding digital lending, its benefits, and how it works to various types of lenders and how NBFC advisory can add value in helping your business outplay and survive in this fast-paced field.
What is Digital Lending?
Digital lending refers to the fact that loans are distributed on an online platform or through mobile applications rather than through traditional, branch-based banking systems. Every step of the lending cycle -loan application and credit all the way to disbursal and repayment-is rendered digital. This makes digital lending faster, more efficient, and more accessible, especially to underserved populations and small businesses.
India’s digital lending sector has seen an explosive growth from $9 billion in 2012 to nearly $110 billion by 2023, as estimated in a recent report by the Boston Consulting Group. Boston Consulting Group, The sheer potential this sector presents for disrupting traditional lending in India speaks volumes of the growth witnessed.
Benefits of Digital Lending
Borrowers and lenders are discovering the many advantages that digital lending has to offer. Here is why digital lending is on the fast lane:
- Faster Approvals: Nothing beats the notion that traditional loans take a substantial amount of days, even weeks, to process. Now, any digital lending platform will approve loans in minutes or a maximum of hours thanks to smart algorithms and automated systems.
- Convenience at Your Fingertips: Digital lending lets you skip the hassle of visiting a bank branch. You can apply for a loan anytime, anywhere, using just your smartphone or computer. This is especially helpful for people living in rural or remote areas.
- Lower Costs: Automation enables the capacity to avoid large teams and, therefore, can save on digital lending costs. This means better interest rates and even more flexible loan terms for a borrower.
- Reaching More People: Digital lending platforms utilize non-traditional sources of data in making credit decisions, therefore allowing them access to a much larger audience who may not have traditional credit histories. This is particularly effective in reaching underserved communities.
- Better Experience for Customers: With apps and websites that can easily be navigated, lending platforms digitally have a seamless experience. Here, the applicant can find everything- updates related to their loan balance, payment reminders, and everything else all at one place.
According to the RBI Financial Stability Report 2023, around 70% of all digital loans in India were approved and disbursed within 24 hours, showcasing just how efficient this system is.
RBI Financial Stability Report 2023- https://www.drishtiias.com/daily-updates/daily-news-analysis/financial-stability-report-june-2024
How Does Digital Lending Work?
The whole process of digital lending is very streamlined and efficient wherein most work is performed by software and algorithms. Let’s look at how the core elements of digital lending take place:
- Loan Application: After filling an application form on the lender’s website or mobile app, people generally start. Generally, such applications ask for basic information such as income and employment details and the loan amount required.
- KYC and Identity Verification: The lenders conduct their e-KYC (know your customer) checks with the borrower’s identity through Aadhaar, PAN cards, or such other digital identifiers. In India, normally for most clients, this is done through eKYC, thus simplifying the process.
- Credit Scoring and Assessment: It often employ the most advanced technologies, including AI, ML, and big data analytics. These tools can either assess the creditworthiness of a borrower through traditional data like credit scores or alternative data, such as transaction history or even social media activity.
- Loan Approvals and Disbursement: After credit checking is over, loan approval and disbursement take place, and the funds are directly transferred into the bank account of the borrower. Some lenders can approve a loan in hours or even days.
- Repayment and tracking: All the repayments can be done through online platforms which come with several forms of payment options like auto debit from a bank account, UPI, or even through digital wallets. The lender tracks the repayment schedule but is also empowered to intervene in case of defaults or delayed repayments.
Digital Lending Guidelines by RBI
The Reserve Bank of India, in its latest circular and guidelines, has amended the regulations to regulate the digital lending ecosystem in India. https://www.rbi.org.in/commonperson/English/Scripts/FAQs.aspx?Id=3413
Any form of digital lender will need to adapt to such new regulations to conduct their business in India.
Some of the latest RBI guidelines are as follows:
- Transparency: They have to present all terms of loan clearly to the customer, from interest rates to processing fees and repayment schedules.
- Data Security: Digital lenders must ensure that the customers’ data is protected and thus falls under a very high level of cybersecurity.
- Fair Lending Practices: The lenders are not allowed to indulge in predatory lending practices and they are expected to follow all the norms that come as part of ethical behavior for treating vulnerable borrowers properly.
A digital lending advisory in India will assist you in meeting such directives and more, and get your business up and running while following all the regulatory requirements.
Types of Digital Lenders
Digital lending in India is diversified and rapidly growing, and many types of lenders exist to meet every kind of need. Here are some of the types you might encounter:
- Peer-to-Peer (P2P) Lending: P2P platforms directly connect individual borrowers with individual lenders, skipping traditional middlemen like banks or NBFCs. In P2P lending, lenders get better returns, while borrowers get lower interest rates compared to regular loans. On the other hand, P2P lending comes with more risk.
- Bank-Based Digital Lending: Most traditional banks have their digital lending platform through its website and mobile app. Brands benefit from brand recognition and regulatory compliance in this case.
- NBFCs: The Non-Banking Financial Companies have taken digital lending majorly. They lend without the strict frames of the traditional banks. Due to their flexibility and innovation, NBFCs cater to a larger population and offer specifically more customized loan options more than other similar financial institutions.
- Fintech lenders: It specialize in fully digital lending solutions. They rely on Artificial Intelligence (AI) and Machine Learning (ML), besides large data sets to quantify the risk and provide loans. Their approach is tech-driven, making it possible to provide completely customized loan products and rapid approvals.
According to RBI’s Digital Lending Report 2023, there has been a growth of 50% in active digital lenders in India over the last three years, implying a robust rise in demand for diverse digital lending services.
How NBFC Advisory Embraces Digital Lending
NBFC Advisory is a specialized service provider for the creation and success of any venture related to digital lending. Ranging from RBI’s newly laid guidelines for digital lending to setting up proper technology, we are a team that can guide you through every process. Here are the ways in which we can assist you:
- Regulatory Compliance: We will ensure that your digital lending platform complies with all the relevant RBI guidelines and helps you navigate this ever-changing and complex regulatory environment.
- Right Digitization of Lending Technology: We assist you to select the right digital lending technology-from AI-based credit assessment tools to payment gateway technologies.
- Market Research and Strategy: From in-depth market research, our experts assist you in providing the optimum digital lending products that fit the requirements of the average Indian borrower.
- End-to-End Advisory: We guide you right from company registration and compliance up to customer management on an ongoing basis to offer complete support through your digital lending journey.
Why Choose Our Digital Lending Advisory Services?
In India, no doubt it requires an ideal combination of regulatory knowledge, technological expertise, and market understanding. That is why choosing Our Digital Lending Advisory Services in India can give your business a competitive edge:
- Clarity on Regulations: It is always complex to strictly follow the RBI guidelines on digital lending. With our digital lending advisory services, you will be guided through regulations and avoid costly penalties.
- Technologies: Rightly selected technologies are the way to smooth operations. Advisory services make it possible to implement leading-edge solutions to better engage your customer and optimize your operations.
- Risks: The business can incur financial losses while using digital lending. Methods of risk management that allow advisory services for reducing defaults and fraud are also being presented.
According to Statista, nearly 150 million unique borrowers were in the Indian digital lending market in 2023, which is a relatively enormous opportunity for new entrants into the market.
At NBFC Advisory we are ready to help you on embracing the future of lending, in case you are prepared enough for it. Understanding our deep insights into regulatory, technology and market strategy, we shall assist you at every step in the digital lending process in India.
Call us today to learn how our support can help your business navigate the world of exciting digital lending.
