Until 10 years ago, taking a loan was a cumbersome process. Borrowers had no option but to approach banks for loans, getting caught up in time-consuming paperwork and trying to prove their creditworthiness. Credit underwriting, which mostly relied on human judgment, took time and it could be weeks or even months before loans were sanctioned and processed. Most banks gave loans only to their own CASA (current account savings account) holders and some only approved loans of applicants who held salary accounts at the bank. Consumption loans, where the lender pays a merchant directly and gets repaid in EMIs, were virtually unheard of.
As any observer of the Indian credit market knows, Bajaj Finance, followed by other nimble lenders such as Tata Capital and Capital First, upended this model of consumer lending and took the lead in a race that left the banks playing perpetual catch-up. Bajaj Finance, which was established in 1987, crossed $73.5 Mn (INR 500 Cr, in annual disbursement back in 2000). In the following six years, the company doubled it to $147 Mn (INR 1,000 Cr). By 2014, the company claimed to have crossed $2.95 Bn (INR 20,000 Cr) mark for its assets under management.
These non-bank finance companies (NBFCs) put in place teams of motivated and efficient employees and created a menu-driven process for consumer lending, which cut down the lag between an application and a credit decision from weeks to days or even hours. Almost overnight, the consumer lending NBFC was born and the consumer finance revolution arrived in India. However, the lending process remained human-intensive — an army of trained salespeople and credit officers honed a manual process until they squeezed all the productivity gains out of process innovation.
Today, something even more dramatic — led by digital — is happening in the consumer lending space in India. The second revolution in consumer and SME finance is here. For people in the industry, the new buzzwords are eKYC, eSign, eNACH, India Stack, APIs and the all-encompassing “fintech”. Just like the first revolution freed borrowers from the shackles of bank lending, by making it easier for someone with a high CIBIL score to avail of a loan in a relatively quick and hassle-free manner, this second revolution is bringing fast and affordable credit to those who traditionally found the doors of finance closed to them — a category of borrowers who are new-to-credit (NTC).
Just as the first revolution made household names of companies such as Bajaj Finance, this one has its own set of champions — companies that’re leveraging innovation and technology to transform the consumer borrowing experience. Some such companies are fintech startups like Moneyview and IndiaLends, who are focused on bringing new borrowers into the ecosystem by providing them with convenient and intuitive web and app-based interfaces.