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Our Thoughts on Simplifying Lending Lending Lifecycle Management and Fintech in India

How to Find the Best Invoice Financing Company for Your Business?

Loan Origination System

Invoice financing is an excellent way for businesses to access working capital and manage cash flow. For that, it’s crucial to choose a reputable company with competitive rates and fees that can meet the specific needs of your business.

However, finding the right invoice financing company for your business can be challenging.

This is why we will provide a comprehensive guide on finding the best invoice financing company for your business  In this blog post. We will also cover the essential factors to consider when researching and comparing different companies and provide tips on making an informed decision based on the best fit for your business.

What Is Invoice Financing?

Invoice financing is a type of financial service that allows businesses to receive funding based on their outstanding invoices. Businesses can sell their unpaid invoices to a financing company in exchange for cash. The financing company then collects payment from the invoice’s debtor, and the business receives the remaining balance minus a fee.

This type of financing is beneficial for small business owners that have a large number of unpaid invoices and need to improve their cash flow. It can also be helpful for businesses that are experiencing growth and need additional working capital to support it.

In addition, invoice financing is a flexible and accessible form of financing for many companies, as it does not require collateral and can be obtained quickly.

Now, let’s determine how you should evaluate your options among invoice financing companies.

4 Tips Before Choosing the Suitable Invoice Financing Company

1. Research and compare 

The first step is investigating shortlisted companies’ backgrounds, services and reviews. When researching, looking for companies with a good industry reputation and positive reviews from other businesses is essential.

You should also look at the rates and fees that they charge. The cost can vary depending on the company and the financing you need. Comparing the rates and fees of different companies will help you find the best deal for your business.

In addition to rates and fees, consider the terms and conditions of each company. Make sure you fully understand the repayment schedule, any penalties for late payments, and any other conditions that may apply.

2. Understand your business needs

The second important factor to consider when finding the best invoice financing company for your business is to consider your business needs. Every business is unique and has different financial needs and requirements. Therefore, it’s crucial to assess the specific needs of your business and look for a company that specialises in your industry.

For example, if your business operates in a seasonal industry, you may need a company that can provide flexible financing options to help you manage cash flow during slow periods.

It’s also important to consider the size of your business and the amount of financing you need. Some companies may have minimum or maximum financing limits that may not suit your business. Make sure to choose a company that can provide the right amount of financing for your business needs.

3. Learn about additional services

The next point to consider is to check for some added services. Many invoice financing companies offer diverse services that can benefit your business. For example, you may look for companies that provide services like credit management or online portals.

  • Credit management services can help you manage your credit risk and improve your chances of getting approved for financing. This service can help you by monitoring your credit score and providing credit reports to help you identify potential issues before they become a problem.
  • Online portals can also be worthwhile for businesses. These portals allow you to manage your financing account online and provide real-time updates on the status of your invoices and payments. This can help you stay on top of your finances and ensure you get the most out of your financing.
  • Another vital aspect is the level of customer service and support each company offers. Choose a company with a dedicated customer service team to help you with any questions or concerns.
  • Additionally, ensure that you have a good communication channel with the financing company; a responsive customer service team can help you with this.

4. Make an informed decision

The final step is to make a data-driven decision. After researching and comparing different options, evaluating your business needs, and assessing additional services and transparency levels, carefully review all the information gathered and compare the pros and cons of each company.

It’s also important to remember that invoice financing is a long-term commitment and that you’ll be working with the financing company for an extended period. Therefore, make sure to choose a company that you feel comfortable working with and that you trust.

It’s better to take your time and make an informed decision than rush into something that might not be the best fit for your business.

Key Takeaways

For small business owners, it’s frustrating when the invoices are not paid, and you need more cash. Here’s when an invoice financing company can save the day. However, finding one that will meet your requirements can take time and effort.

To find the best company for your business, you should research and compare different options, know your business requirements, understand the additional services they offer, and weigh the pros and cons. Although finding a reputable company takes time and research, the steps outlined in this article will help you become confident.

Finezza offers multiple solutions to lenders and banking institutions managing and streamlining tiresome loan management processes. Our software suite will help you process KYC documents quicker, manage loans, perform credit analysis, analyse lending risk and track loan applications.

Get in touch with us today to learn more!

Working Capital Loans: Propelling Startups

Loan Origination System

Working Capital is a financial metric that, despite its technical definition, is better understood in the literal sense of the term which is, ‘the capital that works’. As a production factor, it generates revenue and ensures the continued existence of the other three aspects, such as labour, land, and entrepreneurship.

Working capital management entails controlling liquidity by balancing cash flows. It is a function that determines the survival of small businesses and startups in particular. Businesses have two options for generating necessary working capital: internally generated or externally sourced funds. To meet liquidity requirements, they can either reinvest business revenue in production or rely on external funding such as working capital loans. 

In the early days, startups rarely generate enough revenue to fund their operations, leaving loans as the only viable source of working capital funding.

Let us delve deeper into the topic.

Working Capital: Revisiting the Fundamentals

Working capital is defined as the surplus of a company’s current assets over its current liabilities. A positive working capital indicates that the company has enough liquidity to meet its short-term obligations, whereas a negative working capital suggests a possible cash shortage.

A firm’s working capital requirement is determined by the following:

1. Business type

Compared to service-based industries that generate intangible products, manufacturing firms will have higher overhead costs and cash requirements due to physical inventories.

2. Operating cycle 

The more “time-to-market” a product has, the more working capital the company will need. This holds true for service businesses that bill the clients after providing the service rather than securing upfront payments.

3. Business objectives

Whether the business wants to scale or maintain the current size of operations, its working capital needs will vary. If the company wants to expand its product line or enter new markets, it will need more research, development, and marketing funds.

Whatever the requirement, fledgling companies can rely on working capital loans to finance their immediate requirements or create a buffer for periods when there are fewer cash inflows.

What is a Working Capital Loan and Why do Startups Need it?

A working capital loan bridges the gap between a company’s receivables and payables. It enables businesses to run their day-to-day operations smoothly until their clients make payments. Also, it helps to cover recurring expenses like wages and salaries, rent, etc. and is not meant to fund the firm’s capital expenditures. Working capital loans have shorter repayment tenure and higher interest rates and can be either secured or unsecured.

When a company looks for outside funding to cover its operating expenses, it has two options. One method is offering equity to private investors such as angel investors or venture capital firms. The other is by availing loans to secure operating capital. Between the two methods, working capital loans offer more benefits for startups.

Advantages of Working Capital Loans

Here are a few benefits of working capital loans that startups can avail of:

  1. Simple and faster access compared to equity funding.
  2. No dilution of control in the firm as a result of equity sharing.
  3. Continuous access to cash in the form of lines of credit or overdrafts
  4. Lenders can offer repayment terms that correspond to the cash inflows of seasonal and cyclical businesses. This reduces firms’ repayment burden during non-operational months.
  5. Helps in inventory management by facilitating bulk purchases that offer discounts and fund inventory costs such as warehouse rents,  insurance costs, and cost of shipping, etc.
  6. Help in developing better partnerships with suppliers and clients. With sufficient working capital, businesses can pay their suppliers promptly and sometimes benefit from the discounts offered on upfront payments. Furthermore, they can offer extended credit periods to their customers without worrying about meeting expenditures.

Different Types of Working Capital Loans

From simple pre-approved credit limits for the firm’s current account to specialised trade finance facilities, various working capital loans are available that match the specific needs of any business. Some of these include,

  • Line of credit/ Overdraft– This is a flexible cash facility wherein the businesses can draw from up to pre-approved limits. Firms can withdraw any amount up to the threshold limit, depending on their needs. Usually, the eligible working capital limit is calculated based on the stock or accounts receivables.
  • Term Loans – Term loans are working capital finance extended for a shorter period, typically less than a year. Repayments must be made in fixed, regular instalments.
  • Accounts Receivables Financing and Factoring– These types of working capital funding are appropriate for businesses that do a lot of invoicing. Lenders loan money to businesses based on outstanding invoices.The fundamental difference between receivables financing/ invoice financing and factoring lies in the treatment of invoices. In receivables financing, such invoices are used as security, whereas factoring involves selling unpaid invoices to lenders.
  • Peer-to-Peer (P2P) Lending– Peer-to-peer loans are digital loans based on the crowd-funding model of financing and use online applications to connect borrowers and lenders. In India, the maximum amount that a single borrower can avail at a time through all P2P platforms is Rs.10 lakhs.
  • Business Credit Cards– Corporate credit cards are another attractive alternative source of working capital finance. Using a credit card for business purchases helps to build the startup’s credit score.

The Recap

Richard Branson once said-“Never take your eyes off the cash flow because it is the lifeblood of business”. If one applies the same analogy, working capital management becomes the circulatory system for the business. Rightly so, it is a measure of a company’s liquidity, operational effectiveness, and budget management, and consequently, its short-term financial health.

The shortage of capital is a major reason why many startups fail. A study conducted recently found that 47% of startup failures in 2022 happened due to a lack of financing and 44% due to funds being dried up. When access to working capital is limited in the bootstrapping days, it is sensible to turn to working capital loans to stabilise the cash flows.

This is why Finezza brings end-to-end loan management solutions and credit evaluation services to lending businesses. Our platform supports all administrative tasks involved in lending, from loan origination to NPA management.

Contact us today to learn more about our products.

Why Are Lenders Betting Big on Supply Chain Finance?

Supply Chain Financing

Micro, Small, and Medium Enterprises (MSMEs) are often considered the backbone of the Indian economy, and they account for approximately 30% of India’s GDP and employ close to 111 million individuals.

The COVID-19 pandemic posed many challenges across industries and disrupted supply chains. The current Russia-Ukraine war and periodic lockdowns in China have added to the woes of MSMEs, which also struggle to be a part of the traditional financial ecosystem.

Supply Chain Finance (SCF) offers a lifeline to this sector in these difficult times. In this blog post, let us discover how it can benefit the stakeholders and explore ways to improve its efficiency.

What Is Supply Chain Finance and How Does It Work?

SCF is a short-term working capital arrangement where an enterprise gets its supplier payments financed by an external financier. Supply Chain Finance involves three stakeholders: the supplier or the seller, the buyer and the bank or the financial institution (FI) that offers finance.

The business owners or suppliers sell their high-value invoices to a financial institution at a discounted rate to avail of short-term credit for meeting their working capital requirements. Buyers agree to approve their suppliers’ invoices for a lender to finance the operational capital requirements of a business.

SCF is available both in online and offline modes. Therefore, suppliers can raise invoices online on the dealers to avail credit instantaneously. The supplier and buyer benefit from this arrangement; the supplier gets faster access to funds owed to them, while the buyer gets more time to repay the dues.

On the due date, the buyer pays the financier the total price, and the FI gains from the difference between the discounted price paid to the seller and the total price received from the buyer.

How Supply Chain Finance Benefits All Stakeholders?

Supply Chain Finance benefits all three players of the ecosystem. The lenders are bullish about this mode of financing owing to the benefits it offers to all three participants paving the way for greater acceptance across the MSME sector.

1. Advantage To Suppliers

Here are some advantages Suppliers can avail of from SCF:

  • Suppliers receive immediate cash in hand against their unpaid invoices. Even though, at a discount, suppliers gain from instant liquidity.
  • SCF also results in reduced Days Payment Outstanding (DPO) for the supplier and eliminates the need for follow-ups for collecting payment.
  • They receive funds before the invoice due date and can utilise them for their working capital needs or pay other liabilities.
  • The supplier can use this process with other buyers to rotate funds more times within a year and increase their business turnover.
  • SCF offers them credit at lower rates compared to working capital loans, thereby reducing their finance costs.
  • Automation of systems helps them reduce operational costs.
  • The cash flow is streamlined, smooth and becomes certain.

2. Benefits to Buyers

Supply Chain Finance can help buyers in the following ways:

  • The buyer is relieved from the pressure of paying within 30 days as he gets an additional 30 days to make the payment.
  • A longer time for invoice payment gives the buyer more flexibility to use the available working capital till the payment due date.
  • SCF offers the benefit of reduced cost of goods purchased.
  • As payment is not an issue, suppliers are willing to provide a regular supply of goods, which ensures smooth operations.
  • It also fosters a stronger supplier relationship by providing a smooth working capital flow.

3. Helping the Lenders

Lenders can avail of a few benefits, such as:

  • Supply Chain Finance allows lenders to diversify their risk.
  • Lenders can utilise their underused funds to generate income through interest.
  • Their collaboration between sellers and buyers helps them increase their customer base and improves the opportunities for cross-selling products.

Why Are Lenders Bullish On Supply Chain Finance?

In light of adverse geo-political situations, businesses have been forced to look for innovative solutions to deal with rapidly changing market dynamics. Lenders have spotted a viable growth potential in the SCF model. It has helped organisations overcome their working capital woes while benefitting suppliers and assisting the FIs to diversify their risks and expand their operations.

The Supply Chain Finance sector is poised for a paradigm shift owing to digital adoption and technological advancements. Cash, as we understand, is the lifeline for any business and the working capital finance gap is a concern for most organisations. Automated cash inflows and outflows would help enterprises preempt and manage working capital gaps more efficiently.

Role of Technology in Supply Chain Finance

1. Leveraging AI and ML-enabled Fintech Solutions 

Artificial intelligence (AI) and Machine Learning (ML) provide real-time projections on changes in payment patterns which helps businesses take timely action to avoid a cash flow crunch.

Fintechs are offering cost-effective finance to MSMEs by leveraging technology. Customised ML models and alternate data points for assessing creditworthiness are helping NBFCs, and banks gain better insights into repayment patterns and predict defaults. AI and ML algorithms offer dual benefits: indicate defaults and identify potential financing prospects.

2. Deploying LMS

Innovative solutions like a Loan Management System can help lenders manage multiple loan types and varying repayment frequencies and assist in non-performing asset (NPA) management.

Emerging technologies like blockchain can promote the spread of supply chain finance to cross-border trades. As multiple players are involved in such transactions, the validity of shipments becomes a cumbersome task. Blockchain can help do away with a central authority to help make the process seamless and increase transparency for all players.

As Supply Chain Finance emerges as an alternative financing model, the contribution of MSMEs to the economy will rise further and drive India’s inclusive growth story.

Few Opportunities In Supply Chain Finance

  • E-commerce can help lenders support multiple supply chains.
  • FIs can fund backwards and forward integration along the value chain by adopting an integrated approach.
  • Underserved market segments like consumer durables, commodities, electricals, FMCG, and agro-industries hold great potential to fund their supply chains.
  • Digital platforms and automation allow FIs and stakeholders better system integration and information sharing.
  • Implementing a digital SCF platform offers benefits like automation, risk mitigation, tracking, and monitoring the end-to-end supply chain.

In Conclusion

With Supply Chain financing, MSMEs can access working capital at a lower cost and reduce their dependence on informal channels. It stimulates the growth and development of the sector by providing uncomplicated access to finance.

Finezza’s intuitive product suite comprising Loan Origination Software and Loan Management Software focuses on facilitating faster and more efficient loan management to assist financial institutions and other lending ecosystem stakeholders in monitoring and managing credit applications, processing KYC documents more quickly, and streamlining the entire lending process.

Talk to us to learn more!

How Can Embedded Finance Be an Innovative Gateway for the Lending Industry?

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Technology has advanced so dramatically over the last decade that consumers can order a ride before arriving at their destination. In addition, they can pay utility bills without leaving their homes. In today’s modern world, instant payment systems are a part of our everyday lives, but where does the money come from? The answer is embedded finance.

But what exactly is embedded finance? It is the integration of financial services with non-financial services. It simplifies financial processes and enables consumers to access whatever they need when they need it.

For example, it allows customers to purchase and obtain credit in one location rather than visiting a physical bank to apply for credit and then make the purchase. Customer-facing digital platforms use embedded finance technology to integrate financial services into their offerings.

Let us elaborate in this blog post on a few aspects of embedded finance in this blog post.

What Is the Purpose of Embedded Finance?

Earlier, users had to be directed to a financial service provider at the point of purchase. For example, when booking airline tickets, you can purchase travel insurance. This friction does not contribute to a positive customer experience.

Businesses can sometimes risk losing all of their customers. Customers benefit from a more convenient checkout experience when a travel insurance plan or a BNPL option is embedded into the travel app, not to mention the additional revenue stream for non-financial firms through payment fees.

The appeal of embedded finance will only grow as the digital payments space expands. Today, many non-financial businesses, such as e-commerce players, merchants, and small enterprises, are adopting this strategy.

What Is Embedded Finance’s Role in the Lending Industry?

Embedded lending revenues are expected to increase by US $199,924.6 million by 2029, with a CAGR of 27.5%. Embedded finance allows non-financial companies to directly provide financial products and services to their customers, including loans and credit.

  • By embedding these services, lenders can provide more convenient and streamlined financial experiences for their customers. Additionally, it allows companies to offer tailored and flexible lending options, making them more attractive to customers.
  • Embedded finance is particularly beneficial to the lending industry because it allows companies to reach new customer segments and improve customer retention. For example, a car manufacturer can offer financing options specifically designed for car-buying, making it easier for customers to purchase a car.
  • Additionally, fintech brands are making inroads in the insurance market, developing innovative platforms, and developing contextual insurance products and services. This accelerates the growth of embedded finance in new markets. By 2032, the market may reach US$ 248.1 billion, up from $54.3 billion in 2022.

3 Key Players in the Embedded Finance Ecosystem 

An Embedded Finance Infrastructure comprises three key institutions collaborating to provide users with financial solutions.

1. Digital content platforms

Non-FinTech firms or businesses that own a customer-facing digital platform, such as a mobile app, a website, or a desktop application. They can offer customised financial solutions to customers entrenched within their platform due to their deep understanding of target audience segments.

2. Financial institutions

The purpose of banks, NBFCs, and microfinance institutions is dual. First, they offer financial services and are best suited to managing regulatory compliance and credit risk. Using their network and workforce, they can also process loan requests from the embedded finance ecosystem.

3. Finance infrastructure provider

FinTech company that develops APIs and SDKs to connect financial institutions to digital platforms. SDKs (Software Development Kits) are simply used to integrate functionalities into mobile or web apps. Embedded finance offers loan lifecycle UI, alternative data underwriting engines, customer service, and more as part of its platform/app.

How Does Embedded Finance Benefit Lending Institutions?

In addition to streamlining the integration of financial services into conventional non-financial services, embedded finance has several other benefits for the lending industry:

1. Easy customer acquisition

NBFCs can reach a large and appropriate customer base by collaborating with businesses and embedding their offerings on relevant websites and apps. Financial services can also be offered through websites and apps to riskier customers, which traditional lending methods can hardly achieve.

2. Relevant data collection

In addition to financial data, financial institutions have access to other data, such as shopping preferences and frequency of usage of specific services such as cab-hailing, etc. Therefore, they can curate specific financial products and cross-sell other offerings accordingly.

3. Simplified consumer management

With the companies running the websites and apps dealing with customers, the financial institutions’ and businesses’ responsibility for user lifecycle management is divided, easing the burden on the financial institutions to cater to queries, customer service, and so on.

4 Future Trends in Embedded Finance in the Lending Industry

Embedded finance in lending is expected to continue growing in the future, with several trends emerging ranging from:

1. Increased integration

Embedded finance will become even more integrated into non-financial products and services as financial services become a core component. This will make accessing financial services even more convenient for customers and increase the reach of digital lending platforms.

2. Increased use of AI and machine learning (ML)

Using AI and machine learning in digital lending platforms is expected to improve customer experience and make more informed lending decisions. This will allow for a more personalised loan experience for customers.

3. Increased use of open banking

Open banking lets customers share their financial data with third parties through embedded finance in digital lending. By utilising this data, digital lending platforms can make better lending decisions about their customers.

4. Increased use of mobile-based lending

Embedded finance in digital lending is expected to increasingly leverage mobile-based lending, which allows customers to access loans via mobile apps as mobile usage increases. By making it easier for customers to apply for loans, digital lending platforms can reach more customers.

Summing It Up 

Embedded finance has cut through much red tape, and business owners are looking to integrate payments and financial services into their software seamlessly. Increasing access to these services is inevitable.

For customers, embedded finance simplifies access to services, and for businesses, it increases customer touchpoints, cross-selling opportunities, and the customer experience.

With lenders focusing on customers and monetising through fees and subscriptions, the finance ecosystem has more players than ever with their markets, which is why fintech companies continue to innovate their solutions every day.

Finezza is one such tool. It is the ultimate solution for lending lifecycle management and credit evaluation. Our suite of lending management applications streamlines the lending process, making it easy for financial institutions to manage their loans and evaluate creditworthiness.

With Finezza, you can automate loan origination, underwriting, and servicing while gaining access to advanced credit evaluation tools. This means faster loan approvals, better risk management, and improved customer experience.

Talk to us to upgrade your lending process with Finezza today!

How Can Co-lending Benefit Banks, Customers, and NBFCs?

Loan Origination System

The co-lending model, introduced by the Reserve Bank Of India (RBI) in 2018, is a mechanism where banks and non-banks join hands to provide credit to the priority sector.

The co-lending arrangement allows NBFCs (Non-Bank Financial Companies) which operate in deeper geographies and lend to the MSME Sector (Micro, Small and Medium Enterprises), LIG (Low-Income Group) and the EWS (Economically Weaker Sections) categories, to access low-cost funds from banks.

Banks usually shy from lending to these groups due to high operation costs and credit risk.
The coming together of banks and NBFCs is a synergetic relationship that benefits both the parties and the borrowers. Let us explore the advantages of Co-lending and how it can create a vibrant financial ecosystem.

Co-Lending: An Overview

Co-lending, also known as co-origination, occurs when two lenders get into an arrangement to disburse loans jointly. Under this arrangement, the bank and the NBFC share the risk in an 80:20 ratio. Also, the customers, banks and NBFCs enter a tripartite agreement, and the NBFCs act as the single point of contact for the customers.

The RBI developed co-lending guidelines in 2018 that allowed banks and NBFCs to co-originate loans. These guidelines were amended in 2020 and are now known as Co-Lending Models (CML). The modified guidelines included Housing Finance Companies (HFCs), also in the framework apart from making other changes in the original policy framework.

Many banks and NBFCs are looking at enhancing the co-lending tie-ups in current times, especially when many NBFCs are struggling against the liquidity crunch. Co-origination gives the banks a chance to claim priority sector status for their share of the credit.

The co-lending model will likely touch a total volume of over Rs 30,000 crore by the end of FY 2022-23.

What Are the Benefits of Co-lending for All the Stakeholders?

The CLM offers benefits to all stakeholders of the credit ecosystem by empowering them on multiple fronts. NBFCs and HFCs can leverage their robust presence, while commercial banks offer synergy through the availability of funds for loan disbursal.

Let us delve deeper into this topic.

Benefits for Banks and NBFCs

  • Better Risk Management

NBFCs are in a position to manage and spot risk much better compared to large banks. NBFCs and HFCs are more adept at assessing the creditworthiness of niche customer segments, which are usually not the core target group of banks. With a more structured approach, local focus and specialised skill set, they can evaluate credit applications better and reduce the risk exposure for themselves and banks.

A modern Loan Management System can help tackle challenges like proportionate sharing of risks and rewards, especially when an NBFC has multiple co-lending partners.

  • Increased Reach of the Lending Ecosystem

Co-origination is based on the symbiotic association between NBFCs and banks. Public Sector Banks (PSBs) in India have access to the most affordable source of funds in the economy, and banks release 80% of the credit, which reduces the overall cost of funds. NBFCs can benefit from this and offer loans to their customers at lower rates vis-a-vis their competitors.

PSBs stand to gain from a partnership with NBFCs and fintechs as it enhances their last-mile reach. Instead of a one NBFC one bank contract, co-lending can be imagined as an open digital marketplace in the future. The co-lending framework will enable smooth and faster credit flow to SMEs, with NBFCs acting as the last mile link.

  • Efficiency In Operations

With the use of automation and decision-making tools, co-lending allows lenders to have higher margins by processing more applications and disbursing more loans in a shorter span. The deployment of Artificial intelligence can help FIs analyse customer patterns and predict default probability, helping them make faster and more data-backed decisions.

  • Prevents Systemic Liability

Banks and NBFCs can manage capital efficiently and decrease their liability through co-lending. They can scale their operations by finding lending partners with a good product-market fit. To ensure no negative impact on the profit and loss statement, the on-balance sheet spread that is lesser than or at most equivalent to the off-balance sheet spread can prevent any negative impact on the profit and loss statement.

As co-lending is a collaboration between banks and NBFCs, both partners focus on increased compliance and maintain it, thus preventing system liability.

Advantages for Borrowers

  • Easier Access To Funds

Co-lending allows NBFCs to act as a link between groups which traditionally do not have access to credit and banks by providing them with easy availability of loans. Small businesses and people in the remotest part of the country can get a loan quickly with the help of a mobile application. Fintech has also made manual loan processing redundant through the partnership between prominent banks and NBFCs.

  • Lower Rates

Low cost of funds, automation of the loan process, and established network of NBFCs help lenders reduce their cost of operation. They pass on this benefit to the borrowers through lower interest rates. The co-lending model allows grassroots-level borrowers to get credit at affordable and competitive rates.

  • Financial Inclusion

Co-lending focuses on providing credit to the underserved and unserved groups of the economy. Leveraging the co-lending model, the low cost of funds from the banks and the broader reach of NBFCs allows people usually ignored by banks, mainly due to disparities in their credit risk management approach and core target segment.

Typically, banks take a cautious approach when lending to some sectors to avoid the risk of systemic liability. Partnering with NBFCs allows them to lend to the priority sector while keeping their risk levels in check.

NBFCs can capture a larger market share and process more loans which pump more credit into the economy.

In Conclusion

The co-lending model offers a win-win for borrowers, NBFCs and banks. Borrowers get loans at lower rates than they would have gotten on a standalone basis from the NBFC. They also get a steady flow of dependable and economic sources of funding, and banks benefit from better deployment of their funds that reach the last mile.

Therefore, co-lending is a suitable way forward. If executed well, the process can benefit the economy as a whole. Finezza offers a suite of customised solutions to optimise co-lending and other financial operations to enable organisations to tackle credit and lending challenges, technology integration, and ground-level executions. For example, we help banks, NBFCs, and other lenders track and manage credit applications, process KYC documents faster, assess lending risks, and streamline the entire lending process.

Talk to our experts to know more!

Digital Lending’s Future: Secrets, Obstacles, and Success

Lending Lifecycle Management

India’s digital lending market is expected to grow to $1.3 Trillion in 2030, says Inc42.

Technological growth, higher internet penetration and the tiresome loan application process in traditional banking establishments have pushed many towards digital lending. Moreover, customers’ demand for a faster and simpler loan application process has propelled lenders to go online and adopt fintech solutions. As a result, lenders increasingly rely on digital channels and mobile applications to respond to customers’ needs.

These developments in the fintech sector will shape the lending landscape in 2023. Lenders who don’t keep up with the changing market demands might lose customers to competitors who offer a quicker and more efficient process. Hence, it’s crucial to be aware of these developments, the associated issues, and the steps towards success.

This article will cover key points related to the significant contours of digital lending.

Prominent Trends for Digital Lending

With increasing number of people and businesses turning to digital lending, the industry is expected to grow.

Here are key trends that’ll shape its landscape in the coming years.

  • Advancements in technology

The recent developments in artificial intelligence (AI) and machine learning (ML) algorithms have assessed borrowers’ creditworthiness easier. These algorithms can analyse massive amounts of data, including financial statements and social media profiles, to make more informed lending decisions.

Additionally, advancements in mobile technology and the increasing use of smartphones and tablets have made it easier for borrowers to apply for loans. Digital lending platforms also use encryption and secure communication protocols to protect personal and financial information and prevent fraud. Overall, technology makes lending more efficient, convenient, and safe for borrowers and lenders.

  • Changing customer behaviour

Another factor driving the growth of this sector is the increased convenience that comes with technology. People have become more accustomed to modern technology in their daily lives, so they are more open to using digital lending platforms to apply for loans.

Moreover, greater access to information allows customers to quickly research and compare different lending options, increasing their awareness and expectations of lending products. They can also access the loan products from the comfort of their home at any time and often receive a decision in minutes. This convenience contrasts with the traditional loan application process, which requires customers to visit a bank or lender in person.

Few Challenges to Overcome

Although digital lending is a rapidly growing industry, it doesn’t mean there are no challenges. Here are a few hurdles digital lenders face.

  • Data privacy and security issues

Data privacy and security is a critical challenge, as borrowers’ sensitive personal and financial information is at risk. If this critical information, which includes personal identification numbers, bank account details, and credit history, is not protected properly, it could fall into the hands of cybercriminals. They can use it for identity theft and financial fraud.

Hence, lending companies must implement strong security measures to protect against hacking, phishing, and cybercrime. This includes implementing firewalls, encryption, and other security technologies, as well as regular security audits and vulnerability assessments.

  • Compliance with regulations

Another challenge digital lenders face is compliance with a wide range of regulatory requirements. Different countries have different laws and regulations governing personal data collection, storage, and use. Lenders must ensure that they comply with these digital lending guidelines.

However, often this is a complex and time-consuming process. Lenders must continuously monitor and adapt their security measures to stay in line with the changing regulations.

Route to Success in Digital Lending

Let us focus on some crucial recommendations for digital lenders to capitalise on the growth.

  • Leverage technology to improve efficiency

As financial technology gains steam, lenders who fail to leverage technology risk losing customers to competitors who can offer more convenient and efficient services. Technology can help financial institutions automate repetitive tasks, reduce errors, and improve the overall speed and accuracy of loan processing.

  • Fast and reliable data analysis

Additionally, technology can enable lenders to analyse data better and make more informed lending decisions, ultimately leading to increased profitability and growth. So, use software to automate repetitive tasks such as data entry and loan underwriting, which can save time and reduce errors.

  • Deploy Auxiliary Platforms

Also, you can adopt digital platforms that offer online loan applications, e-signature, and other digital services. This will improve the customer experience and increase convenience for borrowers.

  • Partner with third-party solutions

Lenders should team up with third-party solution providers because they can provide the expertise and technology needed to quickly and effectively implement digital lending platforms and services.

They’ll provide scalable solutions to help you grow and adapt faster. This is particularly important for smaller lenders who may not have the resources and infrastructure to develop and maintain their platforms. Also, they will keep you up-to-date with the latest technologies and trends, which can help you stay competitive.

Key Takeaways

The evolution of technology and changing customer attitudes are vital features responsible for The future of digital lending and its growth. However, significant challenges must be addressed, such as ensuring data privacy and security and complying with rules and regulations. Lenders must leverage technological advancements and build partnerships with third-party providers to successfully navigate these challenges and capitalise on the opportunities.

If you’re ready to digitise your lending processes, check Finezza’s Loan Management Software and the suite of other financial services you can deploy to make your lending processes faster and affordable. We help banks, NBFCs, and lenders track and manage credit applications, process KYC documents faster, analyse lending risks, and optimise the entire lending process.

Contact us to learn more!