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Digital Lending Models Propel India Closer Toward Financial Inclusion Goals

Lending Lifecycle Management

India is a young and developing economy with a population of more than 1.4 billion people. Until the last decade, the country grappled with various challenges across multiple fronts, hindering its overall progress. While most of the problems still exist, we focus on one particular area that deserves the limelight and widespread appreciation: India’s push toward inclusive growth and development via digital lending.

More than 78% of the Indian population above 15 years had a bank account in 2021 against a modest 44% in 2011.

The combination of successful government initiatives, including the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and the rapid internet penetration driven by an exponential rise in smartphone users, have enabled more than 330 million to enter the formal financial sector since 2014.

This article explores the impact of digital lending and its role in financial inclusion in India.

Digital Lending and Its Role in Empowering Indian MSMEs

With more than 13.8 billion registered micro and small enterprises (MSMEs)  in India, it is safe to say that they are one of the most integral components of the Indian economy.

It is also worth noting that MSMEs contribute to one-third of the country’s gross domestic product (GDP) and around 50% of India’s exports while being the second-highest employment generator after agriculture.

One can only speculate and wonder why MSMEs were deprived of loans and other financial products by traditional banks and lenders for the longest time. Things have changed for the better in recent years as digital lending has made loans more accessible than ever before.

Role of Digital Lending: The Goal of a Robust MSME Sector

Here’s how digital lending is disrupting the once-forgotten and overlooked MSME sector today.

1. Government Initiatives and Startups Driving Change

The arrival of the Unified Payments Interface (UPI) in 2016, coupled with the transformative effects of the COVID-19 pandemic, has gradually ushered the cash-based Indian economy toward a digital one.

While UPI has played an important role in boosting the number of digital payments in India, the entry of innovative startups offering inclusive financial products has made credit more accessible to those who mainly relied on informal and unsecured lending channels.

The Goods and Services Tax (GST) was introduced in 2017 resulting in a 50% growth in the number of GST-registered MSMEs against the previous tax regime. This paradigm shift toward digital tax reporting created an invaluable database that contains verified and electronically accessible data.

2. Digital Lending Journeys Outshine Traditional Lending 

It was a stupendous undertaking for women, MSMEs, less-educated business owners, out-of-labour individuals, and individuals below the poverty line to access credit through traditional lending channels.

Digital lending models provide significant advantages over traditional channels and have exhibited great promise in addressing the pitfalls of MSME credit-related challenges. One of the most notable benefits of digital lending is the shorter turnaround time for loan approvals.

While it could take between a few weeks and months to access credit, digital lending has trimmed that time to as short as one day, particularly for first-time borrowers.

3. Manual Tasks and Physical Branch Visits Take a Backseat

Digital lending models have not only simplified loan approval processes, but they have also eliminated the need to fill out manual forms and make in-branch visits for credit approval and disbursement.

Right from borrower verification, background checks, and credit bureau checks to digital loan agreements and disbursement, new lending models leverage customer data to make quick and informed decisions.

Additionally, the digital route provides a more accurate and systematic evaluation of a borrower’s creditworthiness, streamlining credit underwriting.

4. MSMES and First-time Borrowers Embrace Digital Lending

Over 5 million Indian MSMEs have access to formal credit, and this number is expected to grow further in the upcoming years as more and more MSMEs embrace digital lending. Additionally, small business owners are becoming increasingly comfortable with this push toward digitalisation and have no qualms about sharing their data with lenders.

Thanks to their marketing strategies and customer acquisition tactics, Financial technology (Fintech) companies have successfully attracted new-to-credit (NTC) borrowers.

Additionally, since most traditional banks and lenders do not sanction loans below Rs 50,000, new-age Fintech players have capitalised on the opportunity amidst the increasing demand for small-ticket loans, particularly from first-time borrowers.

Wrapping It Up

The Indian digital lending landscape is evolving at a rapid pace, primarily influenced by government initiatives, changing consumer behaviour, and an increasing affinity toward digital platforms. 

As things stand, it is a win-win situation for both the lenders and the borrowers. While lenders can access precious borrower data to offer tailored product recommendations and services, borrowers can enjoy the convenience and easy access to credit and other financial services.

India’s financial inclusion goals primarily hinge on its open digital infrastructure, the significant gap between credit demand and supply, particularly in the MSME sector and the underserved population, and its ambition to become a digital economy.

Finezza is on board with India’s push toward a digital financial ecosystem. As a result, we provide end-to-end solutions that aid growth-oriented lenders in conducting financial analysis and loan cycle management. Additionally, our cutting-edge account aggregator framework allows Financial Information Providers (FIP) and Financial Information Users (FIU) to share real-time financial data to facilitate organised lending, loan monitoring, and wealth management.

Get in touch with us to know more.

Unlocking Financial Inclusion with Microloan Management Software

Loan Origination System

Historically, poor credit penetration results in the marginalised sections of society like low-income households, women and Micro, Small, and Medium Enterprises (MSMEs) being excluded from the formal lending channels. However,

the MSME sector plays a critical role in the economic development of India. The share of MSME Gross Value Added (GVA) in India’s Gross Domestic Product (GDP) was 29.2% in 2021-22.

Also, the contribution of the MSME sector to the GDP and the fact that MSMEs have shielded the Indian economy from global economic shocks emphasises their importance for the economy.

The absence of easy availability of credit facilities for the MSMEs forces them to turn to the informal sector, riddled with unfair practices, and they get loans at exorbitant rates. However, with RBI and the government pushing for financial inclusion, microfinance has become mainstream, ensuring the underserved sections have access to formal lending channels.

Lenders face unique challenges when extending credit to MSMEs as they are generally perceived to be high risk, and the small loan size makes the lending cost unfavourable for the lenders. Microloan management software can help lenders overcome these challenges and can aid lenders in promoting financial inclusion.

Microloans and Their Importance

Microloans are short-term loans, generally of small ticket size, offered without collateral. These loans can be availed by startups, micro-enterprises, self-employed individuals and small business owners with low capital requirements.

The ultimate goal of offering microfinance is that the recipient should outgrow the need for smaller loans and be ready to be a part of the traditional banking channels.

Small-scale entrepreneurs or low-income group families with almost no access to financial or lending institutions are the chief beneficiaries of these loans. Microfinance enables credit availability to those who need it the most but rarely get it; microloans bridge this gap.

Microloans fulfil the following objectives:

  • Help Reduce Poverty 

By providing credit to the economically challenged sections of society, microloans help them generate income and break the cycle of poverty.

  • Women Empowerment 

A large chunk of microloans is offered to women, helping them become financially independent and become active participants in their homes and communities.

  • Employment Generation

Funds injected into small enterprises, marginalised sections, and businesses operating in remote areas lead to local job creation and economic development.

  • Financial Inclusion

Microloans have been pivotal in bringing the unbanked and underbanked segment of the population into the formal financial channels and have enabled financial inclusion.

The government of India and the Reserve Bank of India have been instrumental in devising policies to encourage financial inclusion, and the growth of fintech has contributed immensely in forwarding this objective.

Role of Microloan Management Software In Promoting Financial Inclusion

Adopting fintech and emerging technology by microfinance lenders is helping them improve their efficiency and promote financial inclusion.

Microloan management software helps automate and streamline the loan process and makes it simpler and more efficient for institutions to reach and serve borrowers in the following four ways.

  • Expanded Reach 

The limited reach of the lender network can be a significant challenge for small businesses operating in remote or rural areas. Microloan management software can be seamlessly integrated with mobile banking systems, making it possible for loan officers to process and manage loans, even without a physical setup or computers.

Borrowers also find it convenient to interact with lenders and manage their loans through their mobile phones.

The loan management software, which can easily be deployed on a mobile device, enables lenders to expand their reach and penetration and allows easy interaction between the borrower and the lenders. Lenders can offer cash flow-based loans and sustain the momentum of microfinance and financial inclusion.

  • Enhanced Risk Assessment 

Automated microloan management software enables better risk assessment by integrating advanced analytics and data-driven algorithms. Lenders often hesitate to offer loans to those unable to provide requisite documents and collateral or do not have a credit history.

Lending automation tools help lenders get a more comprehensive view with the help of customised Machine Learning Models, which can provide better insights into repayment patterns and predict defaults.

Microfinancing software also includes external data sources like utility payment history and demographic aspects for risk assessment, allowing those excluded from traditional lending to access credit.

  • Tackle The Issue of Small Loan Value

Another challenge microfinance lenders face is the small ticket size of loans, which makes these loans financially unviable for them. The software enables the automation of tasks like data entry, loan processing, and loan servicing and helps reduce manpower costs to a great extent.

Employing the microloan management software helps reduce expenses associated with microfinance lending and helps lenders offer smaller loans at lower rates without compromising their cost viability.

  • Improved Debt Management and Collections

Microloan management software helps lenders simplify and smoothen the complex and time-consuming process of debt management and collection. The software helps in better debt collection and tracking of loans by automating tasks like payment processing, interest calculations, and loan account updates.

Most loans are mapped to e-payment channels like direct debit mandates or wallets that make it easier for the borrower to make timely repayments. Improved customer engagement encourages timely repayments; borrowers can track loan repayment schedules, receive timely reminders and track payments in real time.

Lenders gain from automation due to reduced errors, better loan portfolio management and lower defaults. Borrowers, on the other hand, benefit from real-time tracking of loans, a more transparent and user-friendly collection process which reinforces their faith.

To Sum It up

Evolving fintech and its quick adoption by financial institutions is paving the way for overall economic prosperity. Loan automation helps lenders enhance their reach and reduce risk and costs. For borrowers, it comes with advantages like the availability of more customer-friendly systems and helps underserved communities access credit.

Adopting technologies and customising services also helps lenders adapt to changing preferences and market conditions.

Finezza offers a suite of products for lending lifecycle management that can support the entire lifecycle management for microloans.

Get in touch to learn how the solutions offered by Finezza can assist you in your lending business

Can Fintech Innovations Bridge India’s Financial Inclusion Divide?

Updates

In the past decade, India has witnessed a quantum leap in the fintech industry. Fintech funding grew exponentially in the last few years, and after the COVID-19 pandemic, the industry became the blue-eyed boy of economies.

Of the total 2,100 fintech entrees in operation, 67 per cent of them started operations in the last five years. Amid COVID-19, India saw a 60% growth in fintech investments, and a Boston Consulting Group report released March 2021 says Indian fintech companies will reach a valuation of US$150-160 billion by 2025, becoming three times more valuable in the next five years.

So what the reports suggest is a skyrocketing rise in the valuation of financial technology in India. But the question still lingers: are these Fintech innovations enough to bridge the country’s financial inclusion divide?

Not everything is rosy in the fintech landscape, it turns out. While the sector is on the edge of a landmark journey towards unparalleled growth, financial inclusion of all and the last mile connectivity remains a challenge.

India’s Digital and Financial Inclusion Divide

India has 1.3 billion (and counting) people spread across the length and breadth of the subcontinent, a significant part of which lives in semi-urban and rural areas.

That population accounts for over 70 per cent of the nation’s population. Yet, according to the IAMAI research, just 20.26 per cent of rural Indians and 64.84% of urban Indians have access to the internet (despite the fact ‘mobile-first’ rural generation exists).

The digital financial gap exacerbates in the rural areas, where 80 per cent of inhabitants (and 64.84% of urban inhabitants) are yet to adapt to fintech as per ET stats.

These rural and semi-urban sections of the population do not have access to the traditional banking system. The World Bank estimates, about half of India’s population may be financially excluded, out of the formal financial net.

Even if they have a bank account, most of them are unable to get benefits due to several factors, including the distance of their village or home to the nearest bank branch, limited financial literacy, disinterest on the part of the bank, traditional mindset, trust issues, and others.

So, how can the challenges be overcome?

Fintech – A Beacon of Hope

Looking at the robust growth of sectors like health, education, and others, it can be safely said that technological innovations can bring technology hesitant people within the financial loop and help break the barriers of the digital divide.

According to NASSCOM, financial inclusion can help reshape the economy. Companies such as Udaan, Meesho are assisting people in making money despite living in far-flung areas. Fintech innovations can keep the momentum going on.

As per ET reports, India can grow into a $1 trillion digital payments market which is already the fastest-growing. In the fiscal year 2019-20, the country received 3,435 crores in digital payments which points out the popularity.

While the government is making strenuous efforts to promote digital India, the Reserve Bank facilitates the sector’s growth through regulatory initiatives. For instance, there will be a specific division at the central bank dedicated to fintech companies.

Fintech Innovations is the Way Forward

The fintech innovations can help accelerate financial inclusion, and technologies like AI and ML will further bridge the financial divide in India.

Despite the explosive growth of the fintech industry, lending in rural and semi-urban regions remains a challenge. Only 10 per cent in rural areas are estimated to have access to formal credit.

Also, India’s MSME sector contributing nearly 40 per cent of India’s 2.87 lakh crore GDP, is chronically credit-starved, even as India makes strides in financial inclusion. As a result, an estimated $600 billion credit gap exists in the sector.

But fintech coupled with digital push has the potential to turn the game of financial inclusion around. For example, Statista expects India’s digital lending market will contribute around 350 billion dollars by 2023.

The current pandemic has changed the scenario of the financial landscape. It has pushed digital payments where almost every segment of the population engages in e-commerce and online transactions.

However, this can be true for urban areas, but hinterland and rural areas may still be out of reach of the final inclusion. Fintech has the potential to help financial lending institutions become efficient and serve customised financial products at affordable pricing.

Banking the Underbanked

The legacy banking system with long drawn time-consuming processes and stringent requirements is not conducive to low-income households.  

Fintech innovations like mobile money can minimise constraints by financial services available to this section of the population. For example, Kenya has shown the way with the success story of its mobile currency. Called M-Pesa, this e-currency offers a vast distribution network and user-friendly tech to provide bank access to more than one lakh Kenyans, thus lifting them out of poverty by improving their savings.

As another example, a digital ID card can help ease access and banking operations. For example, Aadhar is already being used for e-KYC for bank account opening.

Customers can obtain relatively small loans from digital lending companies via applications or online platforms. In comparison to bank loans, digital lending does not require a specific bank account, has fewer conditions, and is much faster.

Besides individuals, lending companies can also provide micro, small, and medium loans (MSME). The coronavirus (COVID-19) outbreak increased already high loan demand in this industry. As a result, many businesses could not obtain bank loans and be forced to seek alternate funding.

Increasing Trust and Convenience 

Low-income households generally tend to distrust digital financial services and prefer cash for transactions. Therefore, the technology should strive to build a more robust infrastructure that allows users to interact with human interface and not solely rely on digital channels like chatbots to gain the confidence of low-income users.

In addition, fintech innovations such as embedding finance in already operational retail chains familiar to low-income households can help generate trust and inclusivity.

Providing Access to Basic Credit

Low-income households often lack access to essential services like water, health, sanitation, education, and electricity, among others. Fintech innovations like pay as you go models allow this section of the population to avail essential services on their terms.

When they save and see the corresponding benefits, they are motivated to keep going, thus encouraging more people to join and help in economic development. For example, Pradhan Mantri Jan Dhan Yojna is a scheme launched by the Government of India. It aims to fulfil the basic credit needs of the underserved sections of society. It comes with an overdraft facility and also offers accidental insurance cover. It is a zero balance account that aims to cover savings, insurance, pension and credit.

Fulfilling Unmet Credit Needs

Low-income households lack formal property rights and documentation, bank accounts and do not have credit histories. The traditional credit rating system considers all these factors and more while considering loan approvals.

Often these households are filtered out by the conventional lenders due to fear of default. Low-income women entrepreneurs are often hit more by this even though they tend to default less than men.

Fintech innovations such as a digital credit scoring mechanism monitored by machine learning can be used to process details and predict creditworthiness.

Plugging Cash Leakages 

Low-income households generally undertake cash-based transactions. However, they are inconvenient, lack efficiency and transparency. Large ticket transactions are unsafe and expensive also. Fintech innovations like digitising payments can plug leakages, reduce costs, and improve traceability.

Financial Products Tailored to Fluctuating Incomes

The cash flow of low-income households is often constrained and unpredictable. This is because most of them are dependent on agriculture for income flows that rely on planting and harvesting times.

Traditional financial service such as monthly EMIs and frequent visits to the bank branch is inconvenient for them. However, fintech innovations such as FarMart and Jai Kisan offer flexible and timely financing to farmers to meet their equipment needs.

To sum up

The fintech innovations have increased its outreach to include stocks, bonds, peer to peer lending, and more. The widening of scope will ultimately help to encompass the underserved low-income sections.

Financial inclusion will catalyse both economic growth and poverty elimination. It will also aid in the achievement of the United Nations’ Sustainable Development Goals (SDGs).

In addition, by bringing innovation, the fintech industry in general and the lending industry will build newer financial products on a scalable architecture.

Finezza offers a whole suite of customised financial solutions to herald a new era where small and medium enterprises, women entrepreneurs, and others could gain financial opportunities like never before. So get in touch with us today.

Financial Inclusion in India Beyond COVID-19

Updates

Global unsettling repercussions of the COVID-19 pandemic led to strict lockdown implementations in developing countries and emerging economies alike. Countries witnessed their social and economic life came to a complete standstill, which adversely affected the lives of millions of people.

The aftermath is massive suffering for the low-income strata and struggles for survival for the daily wage earners. The unbanked population suffers because of a steep fall in income and the absence of a financial security net to keep them afloat during troubled times. Side effects like volatility in local currency rates, fall in oil prices, and widespread inflation further plague the situations.

Many of the low-income groups are finding it hard to pay back their loans due to a fall in their income. As most microfinance loans are paid back in cash at branches or at group meetings, it resulted in mounting NPAs for lenders.

Given the uncertainty that’s ablaze, many fintech entities are stressed on several fronts. Now it is difficult for early-stage ventures to access funding from such financial lending institutions. Moreover, recently announced interest rate cuts have radically changed many industry assumptions.

Role of Fintechs in Financial Inclusion Beyond COVID-19

Financial and lending institutions in emerging markets like India serve the base of the pyramid and play a significant role in the society due to their massive outreach. As the economy shifts from response-mode to recovery-mode, the pandemic has brought about vivid financial inclusion opportunities to the Indian subcontinent.

1. Growth of Digital Finance

The advent of advanced technological solutions, increased mobile penetration, affordability of data services were already spinning a digital lending revolution in the Indian financial markets. However, significant hurdles such as inadequate financial literacy, massive digital discrepancies between urban and rural populace, and a lack of robust banking infrastructure posed a substantial impediment to its growth.

Now the implementation of social distancing norms promises tremendous growth in the adoption of digital financial services and e-commerce. Digital lenders benefit from an increase in their scale rate, outreach, and efficiency.

2. Increase in Credit Availability

Secondly, fintechs are trying hard to respond to the crisis and meet the uncertainty with a positive financial approach. The trend shows how major fintech players are shoring up their capital and funding from investors and lenders.

3. Digitised Lending Solutions

Legacy loan application assessment involved manual processing and verification of applications that included recurring steps often executed through tiring manual effort. Given the gradual increase in demand for credit post the pandemic, lending companies would find it impossible to cope with the legacy loan management solutions.

Moreover, fintechs have also implemented specific cost-saving measures, like say, workforce reduction as their revenues are mostly transaction and volume-based. They have recognised that it’s best to prioritise variable expenses and reduce fixed expenses. Thus, they would need a highly digitised solution to cater to their lending management needs.

4. Optimal Operation Efficiency

Fourthly, most fintechs are working towards maintaining their operational efficiency in the face of a sudden upsurge in the number of customer requests for forbearance and relief. On the other hand, wealth-focused fintechs are polishing their infrastructure, trying to expand capacity and are investing in new resources to withstand the extreme stress to their systems resulting from higher transaction volumes.

5. Advanced Loan Collection

Some fintechs are finding it difficult still to win the attention of investors in the face of intense competition. Attracting end-users is also difficult for them, given the enhanced emphasis on immediate needs and expense management due to the COVID-19 outbreak. It is evident that there will be pressure on lenders to demonstrate strength through their asset quality, post COVID-19. It may be difficult for such businesses to resume collection activities successfully. Thus, they may need to adopt alternative approaches.

6. Stringent Underwriting Procedures

Some fintechs are also tightening their underwriting standards to keep up the quality of their balance sheets and mitigate the rate of NPAs in the future. Such lending institutions may find it unreliable to refer to traditional historical data to make underwriting decisions and may feel the need to adjust their models. In the end, there is a need for equal access to digital infrastructure in urban and rural landscapes, greater financial literacy, and the need for the omission of data biases for a more inclusive recovery.

How Can Finezza Aid Financial Inclusion in India Beyond COVID-19?

How-Finezza's-Automation-Technology-Helps-In-Credit-Card-EvaluationFinancial inclusion benefits economies, and extending financial services to low-income groups can spur economic growth and reduce income inequality.

Finezza is a digitised lending management SaaS tool for lenders. It automates the lending management process to obtain maximum efficiency and better returns. With its efficient data extraction and segregation modules, lenders can efficiently onboard more customers.

It also features an AI-based algorithm that helps the framework streamline the origination process for loan disbursal, making it possible for lenders to handle large volumes of loan applications. Its ML capabilities allow it to generate intelligent reports to assist loan evaluation officers at lending companies enhancing their risk management procedures. The software brilliantly reduces the number of NPAs with smart decision-making reports that count in credit data as well as alternative data. It makes it possible for lenders to digitise the loan collection process and optimizes the ROI of the business.

Even the ‘Atmanirbhar Bharat‘ motto of the Indian government launched in response to the pandemic, requires businesses across the country to count on technology-driven systems and processes. The government has also announced that there is a need to enhance transaction-based lending using data generated by e-marketplace through fintech.

Digital lending with Finezza means an automated underwriting process and flawless risk management for lenders. It is a creative solution for financial lending companies who are looking to get rid of the need for tedious paperwork to make the loan management process efficient and cost-effective. The platform promises lower operational cost, quick turnaround time, faster loan processing, and much more. A framework like Finezza can aid in financial inclusion by tackling various fronts of financial lending management at lending firms, promising better customer relation outcomes and higher returns.

Digital Lending Solutions: 4 Factors Revolutionizing India’s Financial Ecosystem

Lending Lifecycle Management

India’s economy has stood firmly in the last few years despite grappling with internal and external hurdles. As of now, the country’s financial ecosystem is evolving at a rapid pace with the widespread adoption of digital lending solutions, driven by notable advancements in financial technology (Fintech), the entry of non-banking financial companies (NBFCs), positive regulatory initiatives, and consistent growth of micro, small and medium enterprises (MSMEs).

India has tremendous economic potential thanks to its 63 million MSMEs, contributing around 30% to its GDP.

While the Indian government continues to roll out numerous schemes to aid their growth, many MSMEs still lack easy access to credit, hindering their development and, in some cases, even resulting in a shutdown.

This article explores the different facets of the modern lending landscape in India and how digital lending solutions can improve financial inclusion and narrow the gaps in India’s financial ecosystem.

The Challenges of the MSME Sector

Traditionally, MSMEs secured loans from state-owned, private, and foreign banks and other financial institutions. Although the Indian government has mandated Scheduled Commercial Banks not to accept collateral security for loans of up to 10 lakhs, the current process has several gaps that do not allow them to evaluate, approve, and disburse loans efficiently.

Some of these challenges include:

  • Lack of Robust Risk Assessment Mechanisms: The current infrastructure may fail to provide a comprehensive picture of an SME’s financial health or repayment capacity.
  • Inefficient Documentation Process: Although digital documentation and verification processes are evolving, they are not universally applied. This often leads to delays and inefficiencies.
  • Reliance on Traditional Data: Banks tend to rely heavily on traditional credit scores or financial histories, which might not give a holistic view of an SME’s potential.
  • Lengthy Approval Times: The current system might take longer to evaluate, approve, and disburse loans, especially without collateral assurance.

As a result, MSMEs have struggled to access credit without hurdles from banks due to their informal nature of operations, insufficient financial and cash flow data, etc. This data asymmetry also makes it difficult for financial institutions and banks to evaluate their creditworthiness and financial performance, resulting in slower loan disbursements.

This is where digital lending solutions are bridging these gaps in the Indian financial ecosystem.

How Digital Lending Solutions Are Set to Revolutionize MSME Loans 

The Indian financial landscape has long awaited its own ‘paperless, automated, and bank from anywhere’ opportunity, and the arrival of digital lending solutions marks a pivotal point in the industry.

Swift and paperless loan disbursement and enhanced customer experience are key factors driving India’s demand for these agile lending solutions. This trend is likely to gain further momentum in the upcoming years.

Financial regulators and the Government of India are also influential in improving digital economic infrastructure and encouraging financial inclusion.

It is safe to say that digital lending solutions will pave the way for systematic loan origination and credit evaluation.

How Will Digital Lending Solutions Bridge the Gap?

MSMEs created around 120 million jobs in India, asserting their presence as a backbone of the Indian economy. Therefore, the onus is on the government, regulators, and fintech companies to alleviate the sector and provide them with all the tools to thrive.

Here’s how digital lending solutions provide an advantage and facilitate financial inclusion:

1. Faster Credit Approval

Faster credit approval is one of the most notable advantages of digital lending. Additionally, digital lending solutions have shorter turnaround times than traditional lending, especially for advances and small ticket credits, commonly seen among new-to-credit borrowers.

These platforms will likely replace manual form filling with digital data captures and automated loan evaluations powered by advances in the artificial intelligence (AI) and machine learning (ML) realm. 

2. Shift from Asset-based Data to Cashflow Data

Data is the new oil, and new-age fintech companies are leveraging data and technology to improve financial accessibility, streamline documentation, and accelerate turnaround times for loan approvals.

Conventional loan processes primarily rely on asset-based rather than cashflow data, creating a significant hurdle for MSMEs and freelancers to secure a loan. Cash flow lending is poised to address this problem. Unlike asset-based lending, where the repayment terms depend on assets and collateral, cashflow lending relies on the projected cashflows of businesses.

Digital lending solutions are gaining immense popularity as they use cash flow data to determine the creditworthiness of individuals and businesses. 

3. Digital Lending Solutions are Not Just for MSMEs

Although the onset of digital lending has benefitted MSMEs, retail customers have seen a paradigm shift in their financial journeys. Buy-now-pay-later (BNPL) loans, small personal loans, EMIs, etc., have made credit easily accessible to customers via mobile phones.

Despite the fact that the BNPL trend is still in its infancy, millennials and Gen Zs have embraced it with open arms as they can secure loans at lower interest rates without any credit history compared to traditional lending institutions.

The current market landscape is getting increasingly crowded with digital lending solutions or applications, including Mobikwik, Simpl, LazyPay, MoneyTap, and Slice, giving customers various choices to fulfil their financial needs. 

4. Personalised Loans and Communication

Modern finance has gradually shifted toward catering to the customer’s unique requirements. Nearly 67% of Indians depend on personal loans for their funding requirements. Therefore, it is unsurprising to see the one-size-fits-all conventional lending model fade as the demand for personalised lending processes and communication marches upward.

Additionally, today’s customers seek value through tailored services in exchange for their data, compelling lenders to innovate, focus on personalisation, and cater to customers’ unique requirements.

Advancements in data analytics have paved the way for the accurate evaluation of borrowers’ creditworthiness, allowing lenders to provide customised lending solutions.

Wrapping It Up

The arrival of digital lending solutions has opened up new digital lending models, including invoice financing, P2P lending, BNPL loans, digital mortgages, and mobile lending. Today, the demand for credit from MSMEs and individuals provides an addressable opportunity of over USD 1 trillion, indicating a vast untapped market for digital lenders.

Digital platforms will be the focal point of transforming India’s lending landscape and address the gaps in India’s financial ecosystem.

Finezza offers a wide range of financial products that equip lenders to provide tailored lending solutions to drive financial inclusion, growth, and the borrower’s unique requirements, from lending lifecycle management to loan origination systems.

Book a demo today to learn more.

How Will AI Shape the Post-COVID Future of Financial Services in India?

Loan Origination System

The finance industry embraced technology with open arms ahead of time, only to earn an early mover advantage. The result is promising changes in the finance landscape.

Today, products like chatbots, automation, data analytics, cybersecurity, and more are questioning India’s future in financial services.

Technology battled the challenge of financial inclusion that the pandemic brought forth with Artificial Intelligence or AI piloting the initiatives such as gathering data.

It is now time to make sense of the data hence gathered. So let’s explore the possibilities of how AI could shape the future of financial services in India.

Stakeholders Spearheading AI-Driven Solutions in Fintech

AI has a significant footprint on nearly all sectors but with varying degrees. For instance, investment banks have been the major player in AI adoption. Leveraging NLP and ML, they have shaped how AI can be adopted.

This is followed by the retail banks, which have grown accustomed to using predictive analysis to support customer retention initiatives. It includes the process of mining present and past data and statistics to predict future behavioural patterns.

Banks construct strategies to retain customers by delighting them based on the likely customer behaviour. The industry players probably lagging are insurers, maybe because of the limited set of products.

Also read: The Future of Blockchain and Cryptocurrency in India

Other AI-based technologies that banks use are anti-money laundering, anti-fraud, compliance, credit-underwriting, and smart contracts technology.

Some AI Implementation Efforts Companies Bank On

The adopters of AI have reaped some fantastic benefits by deploying it into their business strategy. In a nutshell, AI backs up innovative efforts to launch new products and services or even find and enter a new market of opportunities.

Presently, the extensive benefits of AI in the finance sector feature lower operational costs, data-driven decisions, predictive analytics, and ramping up employees’ working capacity.

There’s more: AI enables better product curation, improved risk management, elevated marketing services and high customer satisfaction.

This is our affirmation that AI would help companies break beyond the boundaries that legacy players planted.

For instance, insurers are expected to experience the highest AI adoption rate. This is because they have the most room for adoption as they lag and have a limited product range. As a result, the next five years can be a significant game-changer in the face of insurance products.

How can companies invest in AI?

AI cannot bring disruptions if not invested strategically.

Therefore, organisations need to evaluate the success AI can help procure for them. It is a critical aspect to consider for business strategy.

Also read: Stages in Loan Origination Explained

But, how can a company evaluate the success of the application?

There are three reliable metrics that the existing users of AI believe in. Pinning the most reliable metric to track the views here might get contradictory, but here we are, with the top three metrics:

  1. Customer satisfaction – Some companies believe the success of AI ultimately boils down to the customer or stakeholder’s satisfaction. Any improvements in the level of satisfaction show AI’s potential in action. Some great examples of measuring AI success lie in NLP and ML, including tools like automated chats and requests for quotes (RFQs).
  2. Shrinking operational cost – AI can, through cutting manual processes, among other ways, help reduce operational costs. Higher costs that AI deployed tools help save, propels better performance, and eventually succeed.
  3. ROI – AI can construct a better road to travel and reach the expected Return on Investment (ROI). AI initiatives towards increased ROI are extraordinary measures of its success and its capacity to scale.

The possible roadmap to AI’s evolution

AI can help companies scale and innovate, but how can we possibly reach the destination is still a matter of concern?

Earlier, the business strategy was simple: Look through labour costs and find the rates that best fit manual, repetitive and process-driven tasks.

But now, companies look for digitised solutions, and in case they can afford them, they choose to hire robots. Ultimately, the fundamentals of an organisation’s operational process are up for some serious change.

This is how the traditional or legacy structures of work are shattered.

Another possible obstacle in the journey of financial industry evolution is job opportunity. Job opportunities are likely affected by AI’s wide-scale adoption, and existing efficiencies might be up for a review.

Also read: 5 Ways In Which AI Is Revolutionising The Lending Business In India

If you think this is all, we urge you to think again. The entire shift in customer experience and job possibilities would also have a major impact on real estate.

People whose job replacement is not on the books will be able to achieve more and get more things done with the same amount of workload.

Beyond this, the layout of the journey is much more than job replacement. It is also so much more about rightly utilising AI and supporting tools. The risks of AI are potentially high given the size of the organisation and its understanding of AI capability.

Any roadblocks on the journey of expansion?

Yes, the cost is the major roadblock organisations can experience while trying to venture into AI. Insufficient infrastructure and poor data quality are the significant areas of worry.

Companies with larger income pools have an advantage over others. For instance, they can enjoy the potential of AI sooner than their smaller counterparts which may entail growing beyond a threshold that others can reach.

Also read: How Will Machine Learning Transform Credit Underwriting Software?

Organisations are aiming to spike up their investments in technologies like AI that have the potential of revisiting how legacy firms work. However, it is not about redefining how the finance industry works but rather letting the foundations stay intact and trying to build better pillars to business success.

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