BENGALURU: The credit market in India is ever growing as more and more seek loans from the formal sector. But, where larger banks fail to reach, technology-enabled KYC verification is helping new players to add customers. Customers from lower income groups, especially those without a collateral or a regular monthly income, find it difficult to avail loans from traditional banking sources. This is where fintech companies put their technological base to good use. Urban and large banks may access CIBIL or such credit databases to verify customer score. Microfinance firms and lenders in the rural affordable housing segment use other automated processes and independent credit appraisal technologies.
“We generate a ‘Shubh score’, which ranks a person on his credit-worthiness. When a person applies for loan through the Shubh Loans app, he has to upload his photos, PAN details and bank statements,” says Monish Anand, co-founder, Shubh Loans, a fintech company headquartered in Bengaluru. He added that a majority of loans taken are for rental deposits, marriages, security deposits, paying off existing loans taken from moneylenders, and education.
The country has a number of fintech companies, including FlexiLoans, FineTrain, Capital Floats, KredX and InstaKash, among others. Technology is their backbone. According to a PwC report, chatbots, IoT and Machine Learning are the technologies that are defining the financial services sector right now. Fintech companies in India currently offer loans at rates ranging from 24-48 per cent per annum.
Do these fintech companies eat into the market share of traditional banks? PP Narayanan, president and head, MSME and transaction banking, Lakshmi Vilas Bank, does not think so. “The demand for credit is so high in this country that there is space for all players. These fintech companies have the advantage of technology, which is great for onboarding a customer. But the issue is the recovery of money,” he says.
Banks operate via brick-and-mortar branches and they lack manpower, says Narayanan, who opines that small finance banks have an edge in the market as microlending is dealt well by these players.
Experience shows that clients in the microfinance area are generally prompt in repayment. But, a lack of sound financial habits sometimes makes them less credit-worthy, says Rahul Sekar of Shubh Loans.