Even as banking access has become a reality for millions of Indians through Jan Dhan accounts, a huge chunk of the working population still remains left out when it comes to access to easy credit. But several fintech companies are now trying to bridge this gap. In an interview with Outlook Money, Monish Anand, Founder and CEO, Shubh Loans, explains why this gap exists and how fintech companies are leveraging technology to bridge it. Excerpts from an interview.
Unfortunately, there is a very small market segment that is served, and a huge market segment is left unserved with regards to the credit access. Considering the findings of the BCG report, there are 267 billion households in India out of, which only 10% of households earn income up to Rs 10 lakh per annum while 50% of households earn an annual income between Rs 1.5 lakh to Rs 4.5 lakh. So, there is a significant difference in credit allocation to these market segments as the former 10% of households access 70% of the total credit offered by formal financial institutions.
So there is a gap... right?
Indeed! There is!
This underserved or unserved market segment has incessantly been ignored by the formal lenders; hence, they have no access to credit loans from banks and NBFCs. Willingly or unwillingly such households have been approaching employer, family, friends or private money lenders for the credit requirements, which exploits them by charging a higher rate of interest or in other ways.
Technology has an incredible influence on the masses, and it has been tremendously contributing to the evolution of industrial sectors. Money lending has been an integral concept in society since a long time, but technology has given it a new facet by making it more secure, reliable and transparent. Money lending happens only when a lender may get what he wants. The entire process of money lending takes place only when the lender is confident about the intention and ability of the borrower to repay the credited amount. And technology is facilitating the lender to gain this confidence by collecting authentic data points related to the borrower.
Customers can share their personal and financial details available on mobile phones with lenders. Especially, a customer without financial data record like a bank statement or a payslip. For these customers, lenders can analyse and refer to the alternate data of the customers to calculate the credibility of the borrower and his ability to repay the loan.
Yes, things are changing as the unequal access and distribution of money lending is being addressed with the advent of technology which is very crucial. Banks and shadow banking sectors are now realising the monetary and social impact of crediting loan to the unserved market segment. But this sector has great potential to identify and fix other challenges as well.
Emerging fintech companies are primarily focusing to remove the process friction. This means fintech has cut down the time and documentation formality in the process involved to sanction loans. Today, an applicant can credit loan within a few minutes with minimal paperwork, this is how technology is making the overall financial process simpler. However, fintech has another vital role to play by ensuring that the credited money is reaching directly to the end-customer.
Shubh Loans primarily addresses the credit requirements of people who have limited or no access to the formal loans offered by existing financial institutions. The segment of the market, which is called The Next Billions, basically the household with an annual income of Rs.1.4 lacs to Rs.4.5 lacs are our major serving segments. These people are the Light-Blue Collar group including factory workers, security guards, drivers, delivery persons, and many more who are skilled and earn a decent amount of monthly salaries ranging between Rs 10,000 and Rs 15,000. This segment has bank accounts, good credit score but least access to loans, and thus, Shubh Loans assists them to credit loans on fair term and conditions.
Online lending platforms are nimble, and they owe the attributes of experimenting and learning while progressing with an approach to address the real issues prevailing in the money lending sector. Leveraging the implications of digital tools and technology, online lending platforms effectively reach to underserved or unserved borrowers. Moreover, online platforms can better analyse and prescience the possibility of default by collecting real-time and alternate data of consumers from reliable sources. All such factors motivate digital money lending portals to serve those who are ignored by banks and other financial institutions.
The future of lending platforms in India is indeed bright. Fintech is coming up with reliable and practical models of operations that will focus more on enhancing the cost of acquisition and reducing delinquency. Fintech apprehends that the prime objective of lending money to gain profit on each loan while ensuring repayments. As they have identified the massive requirement of loans in the market, they are strategically planning to implement the most effective ways to get the money back which ultimately is the major objective of these platforms. Therefore, the market is expected to be developed with this consolidated approach of multiple upcoming players which will ultimately upscale the national economy.