posted on 2020-05-28 05:42:34 by Admin
In India, financial services are the largest adopter of digital technology to fill the gap created by traditional lending. With alternative credit writing models, FinTechs have successfully been able to tap the uncatered lending market.
It is a testing time for Digital Lenders to manage Non-Performing Assets and liquidity crunch as NBFCs don’t have auto moratorium from Banks. They’ve to keep their game up by innovating their credit models. Loans to SMEs are based on cash flows which are currently affected due to the low demand however that will be helped by the Govt’s 20% working capital enhancement proposal.
Only in the first week of May, many digital lenders raised funds for investments. Among them was Loanadda, to expand online acceptance and to build product capabilities.
Innovation in Digital Lending
In the new normal, companies leveraging digital platforms can continuously bring value to their customers. To tap the opportunity, digital lenders are consistently working on their credit assessment technology platforms. Also, diversifying their portfolios to reach customers in Tier-2 and Tier 3 cities without being limited to lack of online services knowledge.
Innovation in the credit model is helping them to reduce the operation cost while lending to quality leads. This model will help customers who could not borrow from traditional lending. The rating model is mapped to various points sourced from credit-debit history, trading & brokerage accounts to even social media accounts.
Outlook for Digital Lenders During the Crisis
Digital lenders may face difficulty in the short term due to consumers or businesses missing EMIs or default. While in the long term, their advanced credit risk algorithms will help to limit the loss. With such technology, it will have the opportunity to serve more consumers and businesses to whom traditional banks don't serve.
The end to end digitization of loan disbursal process solves the problem of credit needs and no-physical contact services. The low cost of onboarding and less turnaround time make the process easier for the borrowers. Now with digital document verification, Video KYC, and online assistance makes the whole process digitized. Hence, easy for borrowers & lenders and required financial stimulus in the ecosystem.
Opportunity for Digital Leaders
Digital Lenders and MSMEs
Currently, small and medium-sized companies are facing the biggest challenge of cash flow. With technology and experience, digital lenders can address the financial needs of small businesses in the days to come. It requires a deep understanding of the MSMEs' working model and needs designing of customized financial products.
With the regulatory intervention to ease the norms for NPA recognition and stage 1 & 2 accounts, digital lenders can play a big role in incentivizing and supporting the MSME Sector.