The pursuit of profit shall forever remain a basic theme in a low-income and unpredictable economy. Traditional banks have left quite a few gaping holes when it comes to unsecured loans, especially for salaried people who are not employed in companies that they classify as A/A+ category. Most people do not have an attractive monthly take-home, security or even credentials required to get a personal loan from banks.
Banks have failed to keep up with the broadening circle of lifestyle needs for individual customers. This is where fintech startups made their mark. They have introduced simple and quick business models that redefined the lending trends in India. The support given by RBI has also helped their growth.
Connectivity and codependence have improved in most businesses, including financial products and services in the recent past. In the wave of digital transformation, new and fast lending models are developed. Let’s explore a few of them.
Quick Personal Loans
Customers, it appears, are warming up to online alternative lending portals, and it is predominantly due to the speed with which the loan application is processed, verified and approved. Tedious documentation, in addition to ambiguous rules and non-transparency in the whole process that a customer faces with banks, has made entrepreneurs reinvent lending for salaried employees. The ease and convenience of digital (and painless) transactions are considered priceless. There are lenders such as Qbera, which disburses personal loans up to INR 5 Lakhs in 24 hours.
At Qbera, the credit risk assessment model is behaviour-based, integrating the psychosocial graph, personal network, credit history, job history and educational qualification of the applicant.
The challenge in India is that, out of over 15 lakh registered companies in the country, banks focus on lending to less than 50,000 companies which they classify as Category ‘A+’ or Category ’A’ employers unlike the new players who reach out to a much larger set of companies including startups.
Alternative Fixed Income Products Become More Popular
Peer-to-peer loans aka P2P loans have become a commonly used term already. As a trusted personal loan platform, it connects financiers looking for better returns than banks with customers seeking fast and short-term loans. Earlier, there were no proper guidelines pertaining to P2P lending.
2016 saw RBI releasing a set of directives regarding P2P loans in India. The paper recommends NBFCs status for P2P lenders, which is almost consistent with what the P2P sector has been demanding. This liberal approach helps to protect the interest of all stakeholders without choking innovative ideas. P2P lenders are hoping for these recommendations to become regulations after the budget announcement, which will give the arena a facelift.
Short-term Payday Loans
All of us have faced sudden cash crunch due to some unforeseen incidents. You don’t get instant cash from banks and online payday loan providers often save the day. Their popularity is, hence, justified. As they are offered for shorter tenures compared to online personal loans, it gets repaid more quickly, which is a definite plus. You can even opt for monthly, fortnightly, weekly or daily loans.
You cannot borrow a large amount; the maximum most payday financier’s offer is INR 1 Lakh. One advantage that sticks out is that your credit score is not a deciding factor for approval of short-term payday loans.
Even though banks have included payday loans in their list of financial products and services, people still prefer to avail them from online alternative lenders. This is because banks have access to your account and can pull money out of it (as per the terms and agreement).
Summing It Up
The world of fintech and alternative lending not only provide an easy path to reach more customers by solving the issues of geographic accessibility; they also make sure that they get good returns from lending, just like banks did a decade or so ago.
About The Author
[The author of this post is Aditya Kumar, founder and CEO of Qbera.com – an online lending platform.]