MSME lending What data-driven online loan access can empower small-scale companies
This is the biggest digital lending success in India that has empowered small-scale businesses with fast capital. With more than 6 million SMEs that operate in India and more than 90 percent of them being underserved SMEs The gap between the demand and supply is estimated to be more than seven lakh crore in 2023. This is predicted to grow. In the coming decade, it will grow exponentially. The imperative is to ensure the development of lending services via digital technology and the empowerment of small-business owners.
What is digital lending?
Many factors have led to this gap growing between demand and supply. Lack of warranties and/or a digital footprints has been a challenge for small-scale businesses. This is why digital lenders have seen a resounding successes and have offered quicker credit decisions, a smooth customer experience, less operating costs , and an improved risk profile Digital lenders in the current era have developed a new business model which is set to last.
Digital lending startups provide complete automation of the entire lending process including the origination of loans and information exchange, transaction tracking, managing loans records keeping as well as cash flow management etc. This significantly reduced the time it takes to complete this entire procedure, which results in a streamlined and consistent customer experience.
A profitable and efficient operation model:
Digital lenders offer substantial cost savings. In the first place, since they do not have the requirement for physically-based branches, they can have lower capital requirements and therefore are able to grow rapidly. Additionally, digital lenders enjoy lower costs of acquisition because of the innovative channels for acquisition such as ecosystem partnerships and social media (Facebook or Instagram) and company websites as well as other websites. Finally, they have lower cost of document collection. Automated collection systems like NACH has made it easier to manage the collection process, which results in savings due to the efficient use of resources. In the end, digital lenders have reduced costs for acquisition and maintenance, and, consequently they are able to effectively offer competitive rates of interest to consumers.
A win-win situation for conventional lenders:
With well-established risk management strategies and a diverse customer base banks of all sizes are set to join the revolution in lending technology. By using data digitally to create solid credit underwriting strategies banks are able to create new revenue streams and make substantial cost savings.
Better credit underwriting:
Technology advancements like machine learning models as well as big data analytics, backed by AI algorithms will allow to produce precise underwriting methods and enhance the viability of business. This has allowed loans to be distributed faster to small companies. Additionally, as time passes the benefits could be passed on to consumers who have lower and attractive interest rates.
There have been numerous public infrastructure initiatives that have enabled digital lending. With the introduction of e-KYC and improved Aadhaar access, the creation of Jan Dhan accounts, implementation of GST etc. millions of individuals could be part of the growing digital lending story. This has increased the transparency of the lending system and will be beneficial to deserving clients in the near future.
Future market trends
With the rise of businesses on the internet and the rise of loan platforms, this market will remain affected by the use of data-driven decision-making. The government’s revolutionary initiatives like those of the Bharat bills payment program will be able to improve digitization and eventually establish Indian small and medium-sized enterprises. The most prominent trends in digital lending predicted for the coming years are:
Innovation that will transform the way that lenders lend to SMEs:
Fintech companies of the new era are quickly gaining market share with their innovative products and partnerships-driven operating models. The big banks are embracing online lending technology, we are able to expect to see more innovation among the modern fintech firms including credit bureaus, credit bureaus, and third-party service providers making the lending process more efficient and solving problems for customers increasing credit access, and so on.
Analytics and data break the lending chain:
Indians are becoming increasingly tech-savvy and leave a digital footprint which leads to new loan models that are based on algorithms.
India is set to continue to witness breakthrough innovations in technology such as biometric authentication electronic signatures electronic money orders and so on. This will ensure that the process is transparent and allow access to credit.
In the past few years, online lending startups have grown exponentially and attracted substantial investment from famous investors. They are well-positioned to experience rapid growth in the coming years. Banks that are traditional also altering their business models, shifting to the first-ever online strategy in order to penetrate further into the hugely unserved SME loan market. As the gap between the demand and supply for loans predicted to grow exponentially The future of digital lending looks bright.