Digital Lending and its advantages

The world runs on debt and EMIs. Everything is loan-based, from operational capital for businesses to personal loans for a new laptop or vehicle. However, traditional methods for procuring a loan are painstakingly time-consuming and cumbersome. Thankfully, due to technological development, seeking loans or additional capital can be done at the click of a few buttons and in hours, not weeks. This phenomenon is called digital lending, one of India’s fastest-growing fintech verticals. Today, if you have a mobile phone and an active bank account, there are digital lending apps through which you can secure a loan within the day. The more exciting part is that, unlike traditional systems involving 10+ forms and multiple levels of verification, digital lending applications and platforms take you through a series of steps and enable verification on your electronic device through either a video KYC feature or an OTP-based ecosystem. The lending process is as per RBI’s guidelines and regulatory framework. Furthermore, considering many legacy banking institutions are moving towards digital lending, and the RBI governs it, the annual percentage rates are regulated and within range for each particular loan type.

Digital lending is poised to grow to US$ 350 billion by 2023 and is bound to improve India’s financial inclusion. Consider this: if a person can gain faster and more convenient access to capital without requiring a long-standing partnership with the bank or a tedious approval process, they will be inclined to open bank accounts with said institutions leading to an improvement in India’s financial inclusion rates.

What are the different ways Digital Lending is transforming lending transactions in India?

Streamlining loan disbursement and repayment: Loan disbursement and repayment terms have been two of the most tedious processes involved with lending. MSMEs and individuals requiring an immediate loan resorted to lending from private lenders who charged exorbitant interest rates. However, with digital lending applications, the application and verification process is completed within a few hours, leading to faster disbursement of funds. Further, because it is digital, geographical boundaries are no longer a hindrance. Banks and lending platforms can now access customers across the country.

Micro-lending for no-collateral and no-credit loans: More often than not, a large portion of the ‘so-called’ unorganized sector or India’s unbanked do not have the means to provide security for their loans and are hence largely left out of the lending scene. Thanks to private digital lending applications and micro-lending organizations, these people can secure a small loan using only their aadhar card and bank account information. 

Loan analysis for better predictions – One of the major factors involved in a loan approval is the mitigation of risk. Through artificial intelligence, digital lending platforms can analyze lending data and patterns to provide predictive insights regarding a loan application hastening the approval process. 

Eliminates lender bias – The traditional decision-making process involved certain biases because a human being was involved. However, digital lending eliminates these biases using technology and closely governed rules and regulations, leading to better consistency in loan approval/rejection.

The advantages mentioned above are a few among a list of exhaustive benefits of digital lending. Digital lending is fast-growing, and so are digital lending companies. For instance, LendingKart, one of India’s fastest-growing digital lenders, provides a capital of up to 1 crore for MSMEs and SMEs with a tenure period of 36 months. Similarly, companies such as BankBazaar and PolicyBazaar aggregate and help users access the best credit cards, loans, and insurance policies across different sources. 

It is clear that digital lending is here to stay and will continue to grow as India’s mobile adoption and penetration and the country’s entrepreneurial spirit increase. Please keep checking the xpheno website for the most recent information about fintech and related jobs.