The Indian economy has always struggled with financial equality. With a diverse population majorly engaged in unorganised market patterns, it becomes challenging to provide equal financial access to all, especially to the ones from low-income groups.
Historically, obtaining loans from banks and NBFCs has been a long-winded process that adheres to some rigid standards of accessibility. A significant chunk of the population still does not have access to regularised banking facilities and thus loses out on monetary benefits such as loans, credit and financial accountability that traditional financial institutions offer.
With banks and NBFCs tightening their purses, in addition to the rising NPAs and the COVID pandemic fallout, the sector is not in great shape. Rising unemployment has resulted in SMEs being unable to pay back their existing loans, and lenders have all but stopped lending more to control their risks.
Is it time to take a fresh look at the lending practices that affect the Indian economy? Could these very constraints boost the use and importance of digital lending platforms?
The opportunities
A critical tool for financial inclusion is to ensure easy access to credit for micro and small borrowers, who may otherwise find it difficult to obtain loans from traditional lending channels. An interesting trend is the rise of NTC (new to credit) consumers who are looking for hassle-free credit access. NTC consumers include millennials, freelance professionals, striving entrepreneurs, and even salaried employees who are paid in cash. At this time in India, there are almost 300 million NTC consumers. In this socioeconomic reality that has emerged in light of the COVID-19 situation, there is an urgent need for creating alternative lending channels that cater to non-traditional elements.
From the rubble of the present systems, digital lending and unconventional sources of credit can usher in an age of financial inclusion that caters to low-income groups as well as NTC, leading to a more equitable disbursement of financial resources. With this kind of unprecedented access, MSMEs can jump back to business-as-usual much quicker than otherwise.
The future
So how do digital lending platforms navigate the post-COVID landscape? This pandemic has dramatically accelerated the adoption and implementation of digitisation across the nation. This could be the time to bring together the resources of traditional lending systems with the reach and accessibility of digital lending platforms. With strategic partnerships between the traditional and new-age lending platforms, lending for MSMEs and low-income consumers could be revolutionised. The sector needs to adapt to changing consumer preferences and demands and mould their systems to cater to the widespread need for accessible lending options.