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Advancement of Digital Lending in India

Ashish M. Shaji

| Updated: May 30, 2020 | Category: Digital Lending

Digital Lending

In the recent past, Digital lending has been the new normal in our country. It has significantly transformed the lending system in India. Digital lending can be easily understood by its name itself. It is a process of getting a loan digitally with minimum paperwork. The whole process of loan sanction is executed over the internet. With the technological advancement and various policies, India has seen a rise in the facilitation of Digital lending. The revolution of this phenomenon has been bossed by the fintech companies which have revolutionized the traditional banking in the country. This article intends to explore the factors that have led to the rise of Digital loan/lending in India.

What is the need for Digital lending?

Digital lenders have understood the customer’s need of getting instant funds by way of a seamless medium and the new age tech platforms have intended to be more data-driven than traditional banks which have inconvenient and onerous methods of establishing the creditworthiness of an individual while sanctioning loans. This has intensified the requirement of tech-driven platform like Digital mode of lending.

Numerous grounds justify the need for Digital Lending.

Some of them include the following:

  • To facilitate the loan of any form to the borrower in an easy manner;
  • Cumbersome procedures of traditional banks;
  • Less paperwork and documentation;
  • Simplified way of granting loan which means with digital lending, loan is just a click away.

Reasons for the growth of Digital Lending Model

There have been numerous factors that have caused a rise in the digital mode of lending. However, two prime reasons for its growth have been the enabling policy environment and the formalization and the adoption of the credit rating system of India. These two factors have played a massive role in its positive growth and have permitted the fintech to get consumers online with less documentation procedures. Once a borrower is onboard his creditworthiness can be checked thus making it easier to approve or disapprove the loan.

Apart from the above-mentioned factors, there are some other factors as well that have contributed to the rise of digital lending in India. These include-

growth of Digital Lending Model
  • Technological advancement;
  • Data Security;
  • Reduced disbursal time;
  • Smooth and hassle-free process;
  • Introduction of e-KYC.

Benefits of Digital Lending

The lending model in India has witnessed a paradigm shift towards digitization and automation. This change has been due to the benefits attached to the digital model of lending. The benefits include-

Benefits of Digital Lending
  • Easier access to loan

Going digital means that distance is not a barrier. An individual can initiate a loan application from anywhere at any time.

  • No physical documentation

Digitization allows the process to be paperless which means physical paperwork is not required whereas going to a bank for a loan requires endless paperwork.

  • Quick Disbursal

When you go to a bank for a loan you require waiting for it to be approved and processed whereas in this case the loan is processed in just a matter of time. However, for quick disbursal, you should have all the relevant documents ready beforehand.

  • Transparency

Transparency in the lending process is another benefit of digitization of the lending process. You can be assured of your loan application provided you have a good repayment history.

  • Useful in emergencies

This mode of lending is ideal for people in an emergency. If anyone needs a loan on an urgent basis, then they can access digital mode due to its swift processing and quick disbursal.

  • Access to multiple lenders

Due to digitization of the lending process, now a borrower has the access to multiple lenders that helps you in comparing and choosing the best-suited loan for you whereas in banks you would require doing multiple rounds of the bank to get such information.

  • Easier access to loans for first-time borrowers

Conventional or traditional lenders may not easily disburse loans to first-time borrowers because of no credit payment history. However, in the case of a digital model of lending one can have easy access to loans even if the borrower is borrowing for the first time.

Innovative Digital lending models

Over the last few years, a huge number of fintech start-ups have been founded in India. These start-ups have impacted the lending landscape through innovative business models. Some of these models are mentioned below.

  • Point of Sale (PoS) based lending;
  • Bank fintech  partnership model;
  • Bank-led digital models;
  • Invoice discounting exchanges;
  • Peer to peer lending.

Challenges of Digital lending

Now there is an increased use of algorithms in the decision-making process while granting loan therefore the algorithms should be designed properly and if there is any change it must be tested. Additionally, digitization means more machines and less involvement of humans. It may take some time for people to get comfortable with it as the involvement of humans makes emotional connectivity and the customers feel secured. It is also essential to understand that no matter how much technology impacts our daily life but still there is a large section of people in rural areas or socially backward areas who may face serious challenges in accepting this form of change. Therefore the transition must be keeping in mind the bigger picture.

Conclusion

Digital lending has already become a nationwide sensation and given the benefits attached to it one can expect it to stay for a longer period. The Fintech companies have also combined with the current technology which makes it easier for lenders and borrowers to lend and avail money.

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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