It is common knowledge that India is predominantly a cash-based economy and digital payments, up until recently, weren’t widely used. Besides this, even at the fundamental level, a large chunk of India’s population did not have bank accounts even a decade ago. And for a growing economy such as India to become more robust and progress faster, financial inclusion is one of the key pillars of success. Recent years have seen an increased emphasis on financial inclusion with the government making it one of the primary goals in terms of economic policies. One of the essential aspects of financial inclusion is adequate access to credit for the country’s population regardless of their geographical location.
However, easy access to credit from formal sources continues to remain a major challenge for a significant part of the country’s population, especially the lower-income segment and even salaried individuals. In such a socio-economic scenario, digital lenders play an instrumental role by creating various channels for the underserved population and championing financial inclusion. That said, here’s how digital lenders can contribute to financial inclusion.
Rising demand and the changing lending landscape
There has been a surge in demand for seamless access to credit and customers who fall under the New-to-Credit category such as millennials, GenZ professionals, and the underserved population, particularly the salaried individuals in Tier-II, Tier-III, and Tier-IV cities, are increasingly looking for easier access to credit from verified sources. Although salaried individuals 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 Tier-III cities, poor infrastructure is also a major reason for insufficient credit access. As the demand surges and the credit landscape changes thanks to technological innovations, the emergence of new-age digital lenders has been a much-needed respite for borrowers.
New-age digital lenders: Facilitating financial inclusion across the country
Despite not being an entirely alien concept, digital lending has gained traction only over the past few years with the emergence of tech-driven startups and the digital revolution. A potent force, digital lenders transcend geographical boundaries with innovative solutions and quick loan sanctioning to allow customers even in the country’s hinterlands, easier access to credit.
Furthermore, digital lenders have a higher risk appetite as opposed to banks, thereby enabling them to lend to lower-income segments of the population as well as those new to credit. They also offer innovative products such as microloans and short-term loans that allow lower-income individuals to gradually build a credit history with small loan amounts without falling into a debt trap or facing an immense burden. This is in contrast to banks as they usually prefer large ticket loans that have a longer tenure which often is not feasible for individuals belonging to the lower-income segment.
More than metro cities, it is the Tier-II, Tier-III cities, and the country’s remote regions that majorly lack access to credit and find it a hurdle to avail credit from trusted, formal institutions. Digital lenders, by leveraging cutting-edge technology and digitizing their end-to-end loan application and approval process, come to the rescue of this underserved segment of the population.
Moreover, increasing internet proliferation and smartphone usage have allowed digital lenders to facilitate financial inclusion for the underbanked population, enabling them to avail loans from the comfort of their homes with no paperwork and quick processing. Interestingly, India now has more internet users in smaller cities and rural areas as compared to metros, establishing the breakneck pace at which technology is being adopted. The pandemic has only further accelerated this and simultaneously led to an evolution of the lending landscape. As digital lenders largely rely on digital and banking data, the lower-income segment of borrowers can be incentivized to transact digitally and via online banking which further gives an impetus to financial inclusion.
By way of user-friendly, quick, and secure digital infrastructure, digital lenders not only enable people to avail credit faster and more seamlessly but also make their business cost-efficient and can easily scale their business to newer geographies and target markets. At a time when the world is facing a pandemic that has forced us to avoid physical contact, digital lending platforms are a welcome respite to individuals in need of credit as they can do it with the click of a button with minimal documentation.
The digital lending landscape has evolved unimaginably in recent years and will indisputably continue to be driven by technological innovation and new-age startups in the sector looking to revolutionize the way lending happens and ensure that India’s underserved population gains hassle-free access to credit. The post-COVID era will see more and more people seeking credit at affordable interest rates to revive their lives from the pandemic’s devastating impact. By focussing on the country’s lower-income segment and underbanked population offering them instant loans that are more convenient, digital lenders are reliable sources of credit and are bound to be at the forefront of driving financial inclusion throughout India in the coming years.
by Abhishek Soni, Co-Founder & CEO of Upwards