Digital Lending To Bridge Credit Gap, Surpass Traditional Lending On Unsecured Loans: Report

As the country's credit market undergoes significant changes, fintech companies would play a major role in financial inclusion and credit coverage, as unsecured, small ticket-size loans would see robust growth, credit information company Experian India said in a white paper.

India's credit market will witness “deeper inroads being made in the unsecured small-ticket size segment and secured collateral-based high-ticket size market,” the paper “Fintech-led Digital Lending: Coming of Age,” published by Experian in collaboration with the Digital Lending Association of India (DLAI), said.

The fintech-led digital lending, it said, will help reduce the country's credit gap, promote financial inclusion, and drive credit coverage in a market previously dominated by traditional lenders.

The report provides crucial predictions on the digital lending landscape till 2030, as co-lending becomes the country's predominant operating model.

The report said that more and more traditional lenders would collaborate with the fintech companies to seize the opportunities and ride on the growth trajectory.

Saikrishnan Srinivasan, Managing Director, Experian Credit Information Company of India, said, “Traditional lenders have always dominated asset-backed lending. Our research delves into how fintech-driven digital lending can help bridge the credit gap in India.

Srinivasan noted that with increased digitization in the country, "this segment may become accessible to fintech lenders, allowing them to capture a sizeable portion of the lending pie."

The report highlighted that "the next 100 million customers are likely to have a vastly different profile and expectations than those currently in place."

Siddharth Mahanot, the chairperson of the Knowledge Committee of DLAI, said the new research offers "a comprehensive look into the impact of fintech-led digital lending in India."

The research analyzed the role of fintech-led digital lending in reducing the credit gap, which drives credit coverage and financial inclusion, besides providing important “predictions on the digital lending landscape till 2030,” covering the digital lending industry, key stakeholders, and regulators .

Importantly, it noted that as co-lending becomes the predominant operating model in the country, "more traditional lenders will collaborate with fintechs to reach a higher degree of inclusion".

The report also delves deeper into some of the transformative changes ushered in by the fintech industry while discussing how the digital lending segment "has provided a superior customer experience by reducing the turnaround time for credit applications."

The research shows that fintech companies “have significantly helped reduce geographical disparities in the credit supply.”

The report noted that fintech companies have become important in catering to credit demand and "are likely to come under greater regulatory supervision," highlighting the need for a "higher investment in compliance, cyber security, and other business-critical functions."

The fintech space will also need to "focus on funnel optimization for sustainable growth," and to achieve this, "portfolio monitoring and cross-selling will assume a lot of importance."