How is the digitisation of India’s lending market transforming the SME landscape?

It will be sheer ignorance if we undermine the invaluable role of the SME sector in the Indian economy. That said, it’s unfortunate that most SMEs fail to get enough funds and function in an unstable manner, making them vulnerable to the financial ups and downs.

Such grim scenario forces most of the SMEs to turn towards the unorganized lending sector, which is both costly and complex in its structure.

Looking at the brighter side of things, FinTech is finding various avenues to make things easier for SMEs. One such avenue is digital lending, meaning, one can get loans through online channels and mobile apps.

It’s an exciting development. So, let’s try to understand it in detail.

How is digital lending changing the way SMEs are financed?

FinTech firms are clearly focused on changing the landscape of the lending market for SMEs. They are bringing in technology to speed up the lending process, that includes application, verification, and approval. As SME Loans, Personal Loans, and Credit Cards can now be availed from a common source, and it has become a lot easier for companies to access the lending products.

Digitization has made the process more transparent, seamless, and secure, and with the easy availability of cash, SMEs can drive their business towards growth. Robust and user-friendly apps, as well as online platforms like Rupeeland, IndiaLends, MoneyTap, and Rubique, has made the process of getting personal loans hassle-free for borrowers.

Diversification of lending market

The lending market is diversifying and is now catering to the financial needs of different segments, thereby benefiting the Indian economy. To give you an idea of this expansion in terms of numbers, the lending industry has achieved an annual growth rate of 20%.

For people, Personal Loans, Credit Cards, and Consumer Durable Loans have become popular routes for funding expeditions, weddings, medical exigencies etc.

The transition from offline lending methods to digital lending platforms 

Before machine learning and digital platforms became popular, the process of lending was tedious and back-breaking. With the digitization of data, the documentation process has become a lot more convenient. This is a significant development for bootstrapped businesses for it allows for quick verification as well as approval.

This has triggered a wave of innovation, and the credit industry is trying to find newer ways to streamline the loan application process. They are tapping the potential of chatbots, interactive web interfaces, and mobile apps so that they can efficiently cater to consumer preferences.

The rise of NBFCs

The value of Non-Banking Finance Companies (NBFCs) has ascended, and they have become the go-to option for people who need lower ticker loans. Such companies are gradually eclipsing the traditional lending institutions with a market share of 49%. The key contributors to NBFC’s share are SMEs.

While public sector banks are getting overwhelmed under the stress of mounting debts, the rise of NBFCs can be attributed to their constantly evolving models. Digital India Initiative has also helped NBFCs to garner the attention of millennials. This has made them a critical cog in the wheel of India’s finance sector.

The exponential growth of Unsecured personal loans

The borrowing capacity of the corporate sector is on the decline, and there is stiff competition in the home and auto loan industry. In such a scenario, banks have no other option but to roll out unsecured personal loans to achieve credit growth. And they are doing exactly that. As long as the outstanding credit doesn’t surpass the spends, banks don’t have to worry much in this regard, as there is a lesser chance of a customer defaulting.

The overall advantage to SMEs

Without a shadow of a doubt, SMEs are reaping the maximum benefits from digital lending. As the lending process is simplified, SMEs don’t need to toil for getting business loans, and they can now focus more on the resource utilisation, which wasn’t the case earlier. There is no lengthy application form, tedious paperwork, and arduous approval process to go through.

What lies in the future?

Digital lending is a quintessential example of how technology enables comfort. Just think about it. Businesses can now apply for a loan, anytime, and from anywhere. Credit Card and Personal Loan applications have been revamped for good, thereby ensuring that the right customer avail funds at the right time.

With the smartphone market expanding continuously, and more people preferring online platforms for all kinds of transactions, digital lending can be a game changer. For starters, SME loans are being availed through online platforms, without much human intervention.

SMEs represents a large segment of the market, and are a major beneficiary of digital lending. This makes the future of digital lending rather secure. NBFCs are already embracing this mode of lending to overcome geographical barriers and time constraints. These are certainly the signs of exciting things to come.

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