The author is Founder & CEO, Cash Suvidha
In the last 5-10 years, the evolution of alternative lending industry in India has become a subject of intense discussion amidst financial as well as technology sector. Alternative lending business refers to a digital platform that provides easy and affordable loans to various borrowing needs, including that of individuals, small and medium businesses (SMBs), higher education students, mortgage (housing loan, car loan), small ticket borrowers, new to bank, and underbanked customers etc.
Given that the nation still has limited (yet rapidly growing) access to digital means, a large part of the population continues to depend on primitive borrowing methods such as moneylenders, friends & family, and chit funds etc. Unavailable or incomplete credit scores (which are obtained through inefficient methods such as credit card or loan repayment history) also deny access to bank loans to this population. As a result, 50 million Indian SMBs have an unmet debt demand of close to U.S. $198 billion. The other target segments also have a similar demand. On the other hand, the modern day alternative lending companies evaluate the credit worthiness of a loan applicant by using more innovative data sources and advanced data analytics. Thus, making it easy to look into the finer aspects of credit profile and disburse loans without much hassle. Moreover, the growing volume of digital payments allows alternative lenders to access many more digital data points that can be used for credit risk assessment. By using digital solutions, the speed of loan disbursal also increases manifold, as compared to conventional lenders. The borrowers get to choose from multiple flexible repayment options. All these attributes significantly enhance the scope for alternative lending.
With government’s added emphasis on cashless economy, the industry has grown between 30-40% YoY over the last 5 years.Ever since the demonetisation drive in November 2016, digital transactions have gone up as much as by 55%. With further cash incentives coming in, the trend will only pick up from here. The growth in digital payments has also enabled merchants to build infrastructure to accept payments from various means like debit and credit cards, mobile wallets, mobile and internet banking and Unified Payments Interface (UPI). Favourable regulations, cash benefits, easy of usage, and increased internet and smartphone penetration are working together as a catalyst for alternative lending in India.
Given that the usage of digital mediums of communication and financial transactions is the core of alternative lending industry, the business opportunities for companies in this space is astounding. This opportunity can be understood from the fact that according to a recent PWC report; more than 225 alternative lending companies have been founded in India in 2017. The investors are also so bullish about the alternative lending industry in India that it is the second most funded and one of the fastest growing segments in the Indian Fintech space.
If 2017 was the year when alternative lending industry enjoyed a boom on the back of demonetization and various regulatory incentives, 2018 will witness a transformation in the Indian financial landscape, all thanks to alternative lending. Equipped with the power of deep data analytics, data visualization, and awareness &acceptance amongst target segments, alternative lending companies will be able to customize their offerings to meet the specific customer requirements. This will not only differentiate them from conventional lenders like banks, post offices, and NBFCs, but also reduce their business risk that comes with unsecured lending.It is just a matter of time before alternative lending becomes the primary source of borrowing for small and medium businesses (SMBs) and individuals, who do not have the on-paper eligibility for loans demanded by the conventional banking system.