Fintech Firms Transform Lending in India: Experian Report Highlights Growth and Challenges
New Delhi, India – Fintech companies now control 52% of the personal loan market, providing credit to individuals who were previously underserved, according to a white paper by Experian India. The report shows significant growth in personal loans, with Bihar seeing a 24% increase, Tamil Nadu 21%, and Uttar Pradesh 20% in FY’24 compared to the previous year.
Business loans have also surged, with Karnataka experiencing a 133% growth, Uttar Pradesh 118%, and Bihar 67%. Fintechs have disbursed over Rs 2,48,006 crore in personal loans and Rs 28,607 crore in business loans as of March 2024. These loans, often under Rs 50,000, have reached New-to-Credit (NTC) individuals, thin credit file holders, and sub-prime borrowers.
Despite the growth, the report highlights challenges in managing asset quality, noting higher non-performing asset (NPA) ratios for fintech-originated loans. To address this, the report suggests strengthening risk management frameworks through better data analytics and improved credit scoring models.
Technological innovation, including AI and blockchain, has been crucial in reducing loan approval times and enhancing transparency. Blockchain, in particular, has helped reduce fraud and improve efficiency. Fintechs are also leading in green finance and agri-finance, supporting millions of small farmers across India.
Initiatives like Digital Public Infrastructure (DPI) and regulatory sandboxes have enabled fintech innovation while ensuring compliance. The introduction of account aggregators and open credit enablement networks (OCEN) has allowed fintechs to offer more personalized financial products, driving financial inclusion.
The report forecasts that fintechs could double their customer base to 200 million within the next three years if they continue to innovate and address current challenges. It suggests learning from successful non-banking financial companies (NBFCs) and exploring new market segments to maintain momentum.
Manish Jain, Country Managing Director at Experian India, emphasized the need for fintechs to balance innovation with responsibility. He stated, “While the use of technologies like AI and machine learning allows for greater reach and efficiency, it also requires a strong framework for risk management.”
Jain added, “Collaboration between fintechs, traditional financial institutions, and regulators is essential to create a more inclusive and robust financial system. This white paper serves as a valuable guide for all stakeholders, offering a roadmap to navigate the future of lending in India.”
Doubts Revealed
Fintech -: Fintech stands for ‘Financial Technology.’ It refers to companies that use technology to offer financial services, like loans or payments, in a more efficient way.
Experian -: Experian is a global company that provides data and analytical tools. They help businesses manage credit risk, prevent fraud, and automate decision-making.
Personal loan market -: The personal loan market is where people can borrow money for personal use, like buying a car or paying for education. Fintech firms are now a big part of this market in India.
Underserved individuals -: Underserved individuals are people who don’t have easy access to financial services, like loans or bank accounts. Fintech firms are helping these people get the credit they need.
Rural and semi-urban areas -: Rural areas are places in the countryside, and semi-urban areas are small towns. These places often have fewer financial services, but fintech firms are helping to change that.
Asset quality -: Asset quality refers to how good or bad the loans are that a company has given out. If many people can’t pay back their loans, the asset quality is poor.
AI -: AI stands for Artificial Intelligence. It’s a type of technology that allows computers to learn and make decisions, helping fintech firms process loans faster and more accurately.
Blockchain -: Blockchain is a technology that keeps records of transactions in a secure and transparent way. It helps make financial processes more trustworthy and efficient.
Customer base -: Customer base refers to the number of people who use a company’s services. The report says fintech firms could have 200 million customers in three years if they keep improving.
