Fintech Startups Foresee Faster Loan Disbursal As RBI Opens Credit Bureau Data

Fintech startups have unanimously welcomed the Reserve Bank of India’s (RBI) latest guidelines that allow such entities access to borrower data available with credit information bureaus. They said the new norms will lead to a faster turnaround of loan requests.

Fintech startups until lately did not have access to credit data of borrowers as the access to information was restricted to lenders, non-banking finance companies (NBFCs) and other regulated entities. The RBI was of the view that banks and NBFCs cannot share individual credit information with fintech startups they have partnered with.

In the absence of access to credit data, fintech startups have been relying on other factors including social media profiles and mobile phone usage data, etc. to assess the credit-worthiness of loan applicants. For accessing credible information, they needed to take the tedious route of approaching credit bureaus through their regulated partners such as banks and NBFCs which was time-consuming and often involved manual intervention.

Last year, guidelines related to the credit information were amended. According to the amended norms, an entity processing credit information shall be regarded as a ‘specified user’. The latest RBI notification lays down the eligibility criteria for entities to be categorised as a ‘specified user’.

New RBI Guidelines Remove The Barrier

According to the banking regulator, such an entity should be incorporated in India or it should be a statutory corporation established in India to be categorised as a ‘specified user’. The business should also be “owned and controlled by resident Indian citizens/Indian company, owned and controlled by resident Indian citizens”. 

Besides, the entities should have a minimum net worth INR 2 Cr. The guidelines also stipulated that the startup should have three years of experience in running the business/activity of processing information for the benefit of credit institutions. The fresh guidelines also said that entities should have a robust and secure information technology (IT) system in place for preserving and protecting the data relating to credit information.

The new guidelines make fintech startups eligible for obtaining the credit information membership as a ‘specified user’; thus removing a hurdle in the process of assessing credit worthiness and loan disbursal.

Fintech Players Say New Norms Help In Faster, Better Credit Decisions

Rajesh Mirjankar, MD & CEO, Kiya.ai, an open banking startup, said the latest norm will help fintech startups take quicker and better credit decisions.

“Many of the fintech companies have partnerships with or funding from banks for origination of credit-based accounts. With the access to data for fintech companies during origination, banks will be able to make more informed decisions on underwriting the credit,” Mirjankar. 

It will also be useful if credit bureaus take inputs from fintech startups on data parameters captured in their processes, Mirjankar added.

There is, however, a large pool of prospective borrowers outside the purview of credit bureaus such as Transunion Cibil and Experian. 

Priti Rathi Gupta, founder, LXME, a  financial platform for women, said that access to credit information will boost fintech startups’ assessment and ability to lend. She, however, noted that such startups cater to demography that may not have a credit score. 

“In the long run, as digitisation deepens into the country, the credit information will be more widely captured,” she said. 

Fintech Startups Focused On Lending To MSMEs Hail The Rules, Too

Startups focused on lending to MSMEs expressed the hope that credit disbursal will now be smoother for the segment, as they have been facing the issue of access to credit due to various reasons. 

The International Finance Corporation (IFC) had pegged India’s credit gap to be INR 25.8 Tn, while the formal credit channels meet only INR 10.9 Tn worth of MSME financing needs. Fintech startups have been aiming to fill this credit gap. 

Stuart Jackson, chief operating officer, Global PayEX, which facilitates channel financing for MSME dealers and distributors, said access to credit bureau ratings will help fintech startups present a curated list of borrowers based on their credit profile.

Rohit Agrawal, CEO, Mcapital, the lending arm of Mswipe which is a financial services platform for SMEs, said the move will enable a faster turnaround of credit requests, especially for small-ticket loans where lending is purely based on a certain criterion with no or limited manual intervention. 

Online Lending Demand Shoots Up

Overall lending as a segment has been flourishing in the Indian startup ecosystem for quite some time now. From a handful of startups, India now houses more than 200 funded startups in the lendingtech space. The sector today has startups functioning and providing services to different sets of users in different formats. 

These include B2B lending, B2C lending, P2P lending, then there are marketplaces which curate credit products for consumers and businesses. Besides, in recent times we have also seen massive adoption of BNPL models (Buy Now Pay Later) by startups as well as industry giants like Amazon. 

In 2021 alone, about $1.38 Bn was raised by lendingtech startups which is more than double raised in 2020, showcasing the need and the demand for online lending products in the market.