It is common knowledge that India is primarily a cash-based economy and that digital payments, until recently, were not widely used. On top of that, even at the basic level, a large part of the Indian population did not have bank accounts just over a decade ago. And for a growing economy like India to become more robust and grow faster, financial inclusion is one of the key pillars for success. Recent years have seen an increased emphasis on financial inclusion, making the government one of the main goals in terms of economic policies. One of the essential aspects of financial inclusion is adequate access to credit for the population of the country regardless of their geographic location.
However, easy access to credit from formal sources remains a major challenge for a significant part of the country’s population, especially the low-income segment and even salaried people. In such a socio-economic scenario, digital lenders play a pivotal role in creating various channels for the underserved population and advocating for financial inclusion. That said, here’s how digital lenders can help with financial inclusion.
Growing demand and changing credit landscape
There has been an increase in demand for seamless access to credit and to clients who fall under the new client category, such as millennials, Gen Z professionals, and the underserved population, especially salaried workers in the business sector. levels II, III and III. Increasingly, Tier IV cities are seeking easier access to credit from verified sources. Although salaried people can apply for loans from formal institutions such as banks or NBFCs, they are often denied access due to a lack of credit history. In Level II and Level III cities, poor infrastructure is also one of the main reasons for insufficient access to credit. As demand grows and the credit landscape changes thanks to technological innovations, the emergence of new-age digital lenders has been a much-needed respite for borrowers.
New Era Digital Lenders: Facilitating Financial Inclusion Nationwide
While not an entirely foreign concept, digital lending has only gained ground in recent years with the emergence of tech-driven startups and the digital revolution. A powerful force, digital lenders transcend geographic boundaries with innovative solutions and rapid sanctioning of loans to allow customers, even in the hinterland of the country, easier access to credit.
Additionally, digital lenders have a higher risk appetite than banks, which allows them to lend to low-income segments of the population as well as new creditors. They also offer innovative products such as microcredit and short-term loans that allow low-income people to gradually build up a credit history with small loan amounts without falling into the debt trap or facing debt. a huge burden. This contrasts with banks, as they generally prefer large loans that have a longer term, which is often not possible for people in the lower income segment.
More than metropolitan cities, it is Level II and Level III cities and remote areas of the country that lack the most access to credit and have difficulty obtaining credit from trusted formal institutions. Digital lenders, by leveraging cutting-edge technology and digitizing their end-to-end loan application and approval process, are coming to the rescue of this underserved segment of the population.
In addition, the growing proliferation of the internet and the use of smartphones have enabled digital lenders to facilitate the financial inclusion of the underbanked population, allowing them to obtain loans from the comfort of their own homes, without paperwork and fast processing. Interestingly, India now has more Internet users in small towns and rural areas than in subways, which sets the breakneck pace at which the technology is being adopted. The pandemic has only accelerated this further and simultaneously led to a shift in the credit landscape. As digital lenders rely heavily on digital and banking data, the low-income borrower segment may be incentivized to transact digitally and through online banking, further boosting inclusion. financial.
With a user-friendly, fast and secure digital infrastructure, digital lenders not only enable people to obtain credit faster and more transparently, but also make their business profitable and can easily adapt their business to new geographies and target markets. At a time when the world is facing a pandemic that has forced us to avoid physical contact, digital lending platforms are a welcome respite for people in need of credit as they can do it at the click of a button with minimal documentation.
The digital lending landscape has evolved in unimaginable ways over the past few years and will no doubt continue to be driven by technological innovation and new-age startups in the industry looking to revolutionize the way lending happens and ensure that India’s underserved population has hassle-free access to credit. The post-COVID era will see more and more people seek credit at affordable interest rates to recover from the devastating impact of the pandemic. By focusing on the low income segment of the country and the underbanked population offering them more convenient instant loans, digital lenders are reliable sources of credit and are sure to be at the forefront of financial inclusion across India in the coming years.
by Abhishek Soni, co-founder and CEO of Upwards