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?
Financial 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.