Emergence of Fintech in Lending

Technology is toppling established workflows and disrupting traditional processes in the finance industry. Tasks once handled with bulky computers, human interactions and paper money are now digitized and reliant on technology. Financial technology services are capitalizing on the flapping world of economy and providing the consumers with a better and convenient option. But, how did Fintech revolutionize the conventional Indian banking and finance sector in such a short duration?
Emergence of Lending
It won’t be an exaggeration to state that the SME sector is one of the largest contributors to the progress of Indian economy. 37% of India’s manufacturing output is contributed by 51.1 million SME units spread across the country. This industry also contributes 31% of services GDP and 7% of manufacturing GDP. Despite of the colossal success, the SME sector still suffers due to lack of financial access, this includes outdated data models, lack of awareness, poor access to banking services etc. all of this results in the SMEs reluctantly nurturing an unhealthy relationship with the finance sector. Due to this discrepancy, several small businesses have either shut shop or moved onto complicated and expensive financing options. This is where Fintech firms come to the rescue of SMEs in a similar fashion where mobile phones revolutionized the communication industry in India.
Financial technology can overcome any geographical barriers, simply by offering mobile-first platforms for easy access to capital and increasing the transparency in the process. But, these technological advancements have their own set of challenges.
Roadblocks
The biggest challenge that Fintech firms face is the lack of awareness about financial technology in India. Public sector banks contain antiquated technology that restrict the access to better options for the borrowers. Another challenge is the lack of data sets that can be utilized by Fintech industries. These are either restricted by regulatory authorities or lack credibility in an online environment.
The Change
Fintech firms are gradually bringing about a change in the SME market section by inculcating technology to streamline the lending process, lowering the cost of booking loans and increasing transparency. It will be a boon to Fintech companies if India Stack is introduced anytime soon as it will verify employment information, PAN and Aadhar details in a digitized fashion. Certain issues on the SME lending aspect that are being addressed by Fintech firms are –
– Creditworthiness assessment
The age-old method of assessing the creditworthiness of potential borrowers was relying on the CIBIL scores. But, in India there are several small businesses that don’t hold a bank account, 80% of India doesn’t even have a credit score and analyzing their creditworthiness becomes an issue. However, Fintech firms are bringing about a transformation to these age-old practices by using bank statements, social profiling, Tax data and Aadhar card details as well as offering advanced credit scoring to decide the creditworthiness of loan applicants.
– Ease of access
The entire business financing process is simplified by Fintech firms by taking it online. It’s a one-stop destination for borrowers seeking financial solutions that match their criteria. Also, small business owners are finding Fintech platforms extremely convenient to use. Also, they have 24-hour access to all the lending products.
– Transparency
This is one of the primary aspect of Fintech that catapults it way ahead of mediocrity. All their loan processes are transparent and applicants can easily track their application at every single step.
– Non-conventional borrowers
Technology has now enabled Fintech to cater to self-employed individuals and business owners, apart from the regular salaried individuals. A blessing not in disguise as these advancements will contribute to the overall growth of the economy.
The SME lending market in India is worth about $300 billion today and digital finance constitutes at least 10% of it. Fintech firms are leveraging this opportunity aggressively and like Europe and the US, India too, is all geared up to see an alternative SME finance boom.

Sources

http://www.iamwire.com/2016/01/2016-year-fintech/129530
http://techstory.in/lending-market-india/
https://assets.kpmg.com/content/dam/kpmg/pdf/2016/06/FinTech-new.pdf
http://www.businessinsider.com/the-top-5-fintech-predictions-for-2016-2016-3?IR=T

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