The lending industry in India is expected to play a major role in helping the country reach the $ 5 trillion economy milestone. Adequate and timely access to capital can help businesses grow faster, drive employment, and operate at the cusp of innovation.
However, lenders face a number of challenges in their daily operations. For instance, the continued reliance on manual processes and the lack of innovative solutions in assessing creditworthiness restrict their ability to scale as quickly as they need.
This is where combining modern technologies like Artificial Intelligence (AI) with an agile loan origination system can enable lenders to make data-driven decisions and scale faster.
In this blog, we explore how banks, Non-Banking Financial Companies (NBFCs), and digital lenders can strengthen their processes through the use of an AI-driven loan origination system.
What Is A Loan Origination System?
A loan origination system is a tech-enabled solution that automates the loan origination process end-to-end. This solution leverages multiple technologies such as Artificial intelligence (AI), Machine learning (ML), And automation to value-add in multiple ways.
For instance, a loan origination system can be customised to meet the needs of diverse lenders such as banks, non-banking finance companies (NBFCs), and alternative lenders.
By leveraging such a platform, digital tenders can expedite the loan application process and serve more customers accurately and efficiently.
Digital Lending: Size of the Market and Opportunities
In 2022, the digital lending market in India was estimated to be worth $ 270 billion. The market size is expected to rise to $ 350 billion in 2023. But the true opportunity is projected to be closer to the tune of $ 1383 billion by 2030.
Underserved areas such as rural financing, green financing, and secured loans, especially requiring large-scale financing. However, this milestone market size can only be achieved provided lenders upgrade their loan origination system to bring efficiency, accuracy, access, and speed to operations.
Loan Origination System: A Snapshot of Current Challenges
While the number of loan applications is increasing daily, lenders find it difficult to keep pace and ensure a quick turnaround on loan processing.
Here is a list of common challenges:
1. Lack of Efficiency and Accuracy
Manual processes used for the loan origination workflow reduce the turnaround time for loan applications. As the number of loan applications increases, there is scope for more errors and data duplication.
Also, a large number of loan applicants submit incomplete documentation. Manual follow-ups consume time and can lead to applicant drop-offs.
2. Risk of Loan Fraud
In Financial Year 2022, the total number of bank loan frauds amounted to a ticket size of INR 58,303 crore. In FY23, this trend continued, with INR 18,746 crore of loan fraud already reported in the first half of the year.
Using manual processes leaves lenders at risk of red flags in bank statements and other documentation being overlooked. These oversights can have long-term consequences, such as the growth of loan fraud and non-performing assets. Furthermore, lenders risk being embroiled in criminal cases.
3. Lack of Access
A large number of followers do not have a credit history. Yet, they may have a profitable business. By sticking only to traditional data points, lenders lose out on being able to finance creditworthy borrowers without a credit history. There is a need to identify alternate data points and serve these customers.
4. Compliance Issues
The financial services industry is getting increasingly regulated due to the growing incidence of loan fraud. Lenders can often not apply new compliance guidelines to their existing processes seamlessly.
5. Inability to scale
These collective limitations result in the inability of lenders to scale operations. On the other hand, the sheer number of loan applicants is rising, resulting in missed opportunities and an inability to capture more market share.
Major Benefits of AI-driven Loan Origination System
The introduction of AI enables a loan origination system to deliver higher value to lending outcomes. It brings not only efficiency and speed but also flexibility and insights.
Here are some of the key benefits:
1. Speedy Loan Approvals
AI automation enables the various steps in the loan origination system workflow to be fully automated. For instance, massive numbers of bank statements can be analysed accurately and efficiently within minutes.
Identifying missing documents and follow-up notifications issued to loan applicants can be automated. Process automation enables lenders to expedite loan application processes and drive conversions.
2. Fuelling Access
The use of AI enables multiple possibilities to service underserved customers. Say a borrower’s business is profitable but has no credit history.
An AI-powered loan origination system can recommend alternate data points such as a Goods and Services tax return (GSTR). This data point can easily help verify the company’s performance and establish creditworthiness.
3. Fraud Detection Capabilities
AI has advanced pattern recognition capabilities when processing large amounts of data. It can catch irregularities in transactions, income statements, and banking statements, which are not visible to the human eye. This valuable capability, especially, helps in fraud detection.
4. Customised Products
A one-size-fits-all no longer works for businesses which have such diverse needs. In this context, another outcome of an AI-driven loan origination system is that lenders can customise products at scale and speed.
Based on the data available, AI-driven insights help lenders deliver customised products that serve the business’s specific needs.
5. Data-Driven Decision Making
Using AI-powered loan origination systems enables lenders to make comprehensive, accurate underwriting decisions based on all the accessible data in play.
It can serve deserving first-time borrowers, and turn down borrowers with a fraudulent business history and cooked books.
Lenders also have access to massive amounts of data from customers. The dashboard can be customised and analysed to build superior products and services for future customers.
Final Takeaway
Today, the lending business has become a competitive space. Banks, NBFCs, fintech, and neobanks are vying for similar audiences.
In this scenario, lending businesses that digitise their processes and leverage an AI-driven loan origination system will have a comparative edge.
The best approach is for lenders to partner with a technology specialist to access the right solutions for your lending framework. A one-time investment in the right technology can help lenders scale faster and capture more market share in a dynamic space.
Finezza offers comprehensive fintech tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.
Finezza’s intuitive loan origination system is geared to analyse bank statements quickly and accurately and detect potential fraud.
Book a demo to know more.
Leave a Reply