India's Digital Lending Reset
India’s digital lending sector is currently in a reset mode as the contracting GDP, moratorium, & Covid-19 has forced companies to adopt digital, review credit models & more. This playbook takes a deep dive into the challenges and new pathways adopted by digital lending startups for survival and scale!
Going through the previous chapters of our lending tech playbook, we have seen the massive impact of the lockdown and the moratorium on digital lenders and NBFCs. But since September, the market is on the recovery track and investor confidence in the lending tech is growing. However, that does not mean that all the demand-supply friction has been solved. Due to the unavailability of data and high risk involved in lending to some business sectors, lenders and digital lending startups have had to revisit a lot of the rules of the game.
Due to the rising pressure of NPAs, banks and NBFCs have shied away from extending any credit to nearly a billion Indians and over 58 Mn MSMEs that do not have adequate credit bureau or business data, despite contributing more than 45% to the GDP. While unsecured loans are still an option, there’s a huge amount of risk and the supply for these loans is also through NBFCs and banks which have tightened their lending criteria.
But startups are still chipping away at the problem. While NPAs are a real thorn in the sector, startups such as Recordent have come up with payment reporting platforms to help build the non-banking financial data through distribution channels, which can be used to create alternative risk models. Similarly, Rupifi has come up with easily accessible embedded loans for micro and small enterprises for short-term periods. Embedded loans are linked to other services that the business may be using on a subscription basis such as accounting software or operational tools.
On the consumer side, Moneyonclick is looking to extend digital loans to lower-middle-income families that are neither tech-savvy and don’t have credit bureau files. Easy Home Finance, is looking to solve the home loan challenges. Under the Pradhan Mantri Awas Yojana, it has enabled a significant number of eligible Indians to borrow affordable houses in different parts of India. According to Habitat and IGH, over 73 Mn Indian families don’t have access to quality homes and home loans typically involve heavy documentation and an opaque approval process.