The fintech lending industry continues its upward march with increasing disbursements, showing a promising future for the industry. Reports by Experian and Praxis Global Alliance highlighted that India’s digital lending market stands at a record USD 270 billion in 2022, with a spike in disbursements by about 11 percent.
FinTechs in India have nurtured niche customer segments and witnessed a rapid growth over the last decade. To support this growth there has been a rapid evolution of regulatory frameworks as well, like a 40 percent drop in manual KYC compared to digital KYC, 85 percent reduction in costs with adoption of e-KYC, and much more.
With emerging digital lending companies in India, the country witnessed a growth of CAGR 39.5 percent over a span of 10 years. India’s digital lending market was worth USD 270 billion in 2022 and is expected to reach USD 350 billion by 2023, highlighted a report by Experian.
Additionally, disbursement in the Indian lending market witnessed a growth of 11 percent and reached Rs 174 trillion in FY22, compared to Rs 11.4 trillion in FY17, with a record growth of CAGR 72 percent. The disbursement is further expected to grow and reach Rs 274 trillion in FY26 registering a growth of CAGR 12 percent, revealed a report by Praxis Global Alliance
While digital lending is on the rise and increasing number of FinTechs are entering the credit market, it is also tapping many risks going forward.
The Reserve Bank of India had also recently flagged concerns on the mushrooming of digital lending apps, pointing to the need for regulated entities to increase oversight. It had come out with digital lending guidelines to protect customers data and reduce the increasing number of frauds in the system.
Growth in India’s Digital Consumer Economy
The Experian report highlighted that there is a huge opportunity in digital lending and digital spending in India and there’s expected to be a USD 800 billion digital consumer economy by 2030. This will be a 10X growth from USD 90 billion in 2020.
52 percent of the adult Indian population comprises digitally active consumers who use fintech out of which new to credit customer share as of FY22 is 36 percent from FinTechs, 24 percent from NBFCs and 22 percent from banks in 2022.
The top activity among consumers online were in personal banking, including opening new loans and credit cards, registering about 58 percent. Banks and financial institutions are the main sources of lending in India. These include state-owned banks, private sector banks and foreign banks, as well as non-banking financial companies (NBFCs).
Technological innovations helped overcome barriers to digitisation. However, there are grey areas limiting proliferation of digital lending to product classes other than unsecured personal loan and business loan, the report by Experian further said.
INR 12 trillion opportunity awaits India
India has been waiting for its own ‘Banking anywhere but never at a bank’ opportunity and digital lending has been one of the most prominent off-shoots of FinTech in India.
Superior customer experience and faster credit disbursals have led the way for the exponential growth of digital lending market. It is expected by 2030, digital lending can offer an opportunity of approximately INR 104 trillion, highlighted the Praxis report.
The report said that there can be five emerging opportunities for digital lending — Rural lending, ONDC, Green financing, CBDC and Secured loans.
Rural lending aims to target the 60 percent of rural population which has been underserved and underbanked. ONDC potentially offers a 1.2 million seller base in the form of MSME merchant and an equally large buyer base to lend. Green financing provides credit to the growing base of green customers who are buying environment-friendly products.
CBDC as a new currency and cutting-edge technology is likely to revolutionise not just payments, but also how lending will be done. Secured loans via end-to-end digital journeys will become possible as asset records get digitised and added to India stack.