FinTech NBFCs Dominate In Personal Loans Sector, But Growth Slows

A recent study by the Fintech Association for Consumer Empowerment (FACE) shows FinTech Non-Banking Financial Companies' (NBFCs) dominance in the personal loan market by volume of loans sanctioned, though growth has slowed. Covering data between April 2018 and December 2024, the study shows how lending has been made easy by digital lenders, especially among youth and small-town Indians.

Increased Loans, But Declining Loan Value

The study found out that FinTech NBFCs had sanctioned 8.3 crore personal loans for a total of Rs 81,365 crore in the first nine months of FY 24-25. While they accounted for 76 per cent of total approval for personal loans, they represented only 13 per cent of the value. Thus, the bulk of their loans were of small sizes. The average size of the loan was Rs 9,758 and this helped the borrowers with short-term needs and credit history building.

However, growth within the industry was not strong. The value of loans fell by 15 per cent during Q3 FY 24-25 compared with Q2. The overall rate of expansion throughout the first nine months of the year was 16 per cent, lower than for the period during the preceding year.

Small City Borrowers in Greater Number

The report further highlights that over one-third of FinTech personal loans were transferred to customers living in Tier III and smaller towns. Two out of every three loan amounts went to borrowers below the age of 35 years, which explains that FinTech lenders are serving young borrowers opting for online loans.

Who Is Borrowing and How Risky Are the Loans

The report also takes into account how FinTech lenders are managing risk. FinTech NBFCs had outstanding personal loans worth Rs 72,775 crore as of the end of December 2024. They controlled 42 per cent of all active personal loan accounts but only 5 per cent of the value of total personal loans, reflecting their focus on small loans.

One of the significant trends is that more mature borrowers are taking loans. In FY 24-25, 55 per cent of the total loan amount was given to those with a credit history of five years and above. First-time borrower loans, however, increased to 9 per cent from 5 per cent in the previous year. This shows lenders are slowly moving to new consumers.

What This Means for the Market

This report comes as India's digital lending sector is being slammed with fresh rules to protect consumers and ensure equitable lending. The RBI has rolled out new guidelines to provide transparency and prevent unfair lending.

While expansion has been curtailed, FinTech lenders will continue to be a significant source of quick, small loans with little paperwork. Their convenience is especially attractive to young people and first-time borrowers who may not qualify for traditional bank loans.

As the sector expands further, FinTech companies will have to balance innovation and conservative lending. FACE's report highlights the importance of maintaining the stability of the sector while expanding loan access. Digital lending is thus a strong pillar of India's financial system.

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