Easy access to credit from formal sources remains a major challenge for a significant portion of the country’s population, especially the low-income segment and even wage earners.
It is common knowledge that India is primarily a cash-based economy and digital payments, until recently, were not widely used. In addition to this, even at the basic level, a large portion of the Indian population did not have bank accounts even ten years ago. And for a growing economy like India to become more robust and progress faster, financial inclusion is one of the main pillars of success. In recent years, the focus has been on financial inclusion, with the government making it one of the main objectives in terms of economic policies. One of the essential aspects of financial inclusion is adequate access to credit for the population of the country, regardless of their geographical location.
However, easy access to credit from formal sources remains a major challenge for a significant portion of the country’s population, especially the low-income segment and even wage earners. In such a socio-economic scenario, digital lenders are instrumental in creating various channels for the underserved population and championing financial inclusion. That said, here’s how digital lenders can help with financial inclusion.
Rising Demand and Changing Lending Landscape
There has been an increase in demand for seamless access to credit and customers who fall into the category of new creditors, such as millennials, GenZ professionals, and the underserved population, especially lower-tier earners. II, III and Tier IV cities are increasingly looking for easier access to credit from verified sources. Although salaried people can apply for loans from formal institutions such as banks or NBFCs, they are often denied access due to a lack of credit history. In Tier II and III cities, poor infrastructure is also a major reason for insufficient access to credit. As demand increases and the credit landscape changes thanks to technological innovations, the emergence of new-era digital lenders has been a well-deserved respite for borrowers.
New Era Digital Lenders: Facilitating Financial Inclusion Nationwide
While not an entirely foreign concept, digital lending has only gained traction in recent years with the emergence of tech-focused startups and the digital revolution. A powerful force, digital lenders are transcending geographic boundaries with innovative solutions and rapid loan sanctioning to allow customers, even in the country’s hinterlands, easier access to credit.
Additionally, digital lenders have a higher risk appetite than banks, allowing them to lend to low-income segments of the population as well as new credit users. They also offer innovative products such as microloans and short-term loans that allow low-income people to gradually build a credit history with small loan amounts without falling into the debt trap or facing a huge burden. This is in contrast to banks, as they generally prefer large loans that have a longer tenor, which is often not feasible for people in the lower income segment.
More than metropolitan cities, it is Tier II, Tier III cities and remote areas of the country that most often lack access to credit and find it difficult to obtain credit from formal, trusted institutions. Digital lenders, by leveraging advanced technologies and digitizing their end-to-end loan application and approval process, are coming to the rescue of this underserved segment of the population.
Additionally, the increasing proliferation of the internet and the use of smartphones have enabled digital lenders to facilitate the financial inclusion of the underbanked population, allowing them to obtain loans from the comfort of their homes, without paperwork and with prompt processing. Interestingly, India now has more internet users in small towns and rural areas than in metros, setting the rapid pace at which technology is being adopted. The pandemic has only accelerated this and simultaneously led to a changing lending landscape. As digital lenders rely heavily on digital and banking data, the low-income borrower segment can be incentivized to transact digitally and through online banking, giving an additional boost to financial inclusion.
With a user-friendly, fast and secure digital infrastructure, digital lenders not only allow people to access credit faster and more seamlessly, but also make their business profitable and can easily scale their business to new geographies. and target markets. At a time when the world is facing a pandemic that forces us to avoid physical contact, digital lending platforms are a welcome respite for people in need of credit because they can do so with a click of a button with minimal documentation.
The digital lending landscape has evolved in unimaginable ways in recent years and will no doubt continue to be driven by technological innovation and new era startups in the industry looking to revolutionize the way lending happens and secure that India’s underserved population enjoys hassle-free access to credit. The post-COVID era will see more and more people seeking credit at affordable interest rates to relive their lives after the devastating impact of the pandemic. By focusing on the country’s low-income segment and underbanked population by offering them more convenient instant loans, digital lenders are trusted sources of credit and will be at the forefront of promoting inclusion. financial across India in the coming years.
by Abhishek Soni, co-founder and CEO of Upwards
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