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Deciphering Micro-Lending For Bharat

Micro-lenders generally offer unsecured personal loans usually via mobile apps which starts with Rs 1500/- up to Rs 5,00,000/- for 15-180 days.

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Traditionally, our country has been living with a great divide, India vs Bharat which is a long debate going on for decades now. However, certain green sprouts in technology adoption reflect that the confluence of the both is underway. The latest report by the Internet and Mobile Association of India and Nielsen showed that rural India had 227 million active internet users, 10% more than urban India’s about 205 million, as of November 2019 which corroborates that Bharat is working towards to be more connected with India. Credit shortfall to a certain cohort is also another uniting element. In January 2020, Mr Raju from Eluru, Andhra Pradesh needed money due to a sudden emergency at home when his mother fell critically ill.  He had no money saved at that time; his relatives and friends also could not help him out. Luckily, he had been quite active on social media platforms & he recalled an advertisement from a leading micro-lending NBFC.  He quickly downloaded the mobile application (app) and applied for Rs 10,000/- loan and got the loan disbursed within a minute directly into his bank account. There is still such a big segment in India and specially Bharat which does not have steady flow of income, almost no formal documentation in place, no credit profile, and hence quite often find themselves in emergency situations where they need to get urgent funds for their non-business needs like to buy food, medicines, other essential items and to submit examination fees, utility fees, school fees etc. That’s where micro-lending players come into picture in various capacities and business models, who lend to such cohort to solve their micro yet pressing problems of their daily lives

Who is this cohort?

These are the Indian youth between 18-35 years of age earning less than Rs 25,000/- ($330) per month and majority of them belong to tier 3-4 cities and hinterland of India who often find themselves in cash crunch. Thanks to the availability of low-priced smartphones and ongoing internet penetration driven by cheapest internet connections in the world, these youth are open to experiment and adopt the new technologies in all the fields especially, entertainment, e-commerce and Finance. This opens the opportunity for micro-lenders to interact with them digitally and meet their credit shortfall need.

As per the World Bank, access to finance can be a very effective way out of poverty, Indian lending industry has huge expectations on its shoulders to pull people out of poverty by providing credit to them so that customers use the funds judiciously to multiply the value. Traditional and established banks and NBFCs in India do not find such deprived cohort a worthy cost-viable segment yet. However, it will be fair to say that nascent micro-lending industry in India is enabling people from far-off places (Tier-3,4 and rural), to enter into the lending realm for the first time. It is also liberating for such individuals as a segment, who do not find priority in the business plans of traditional banks and NBFCs, to apply for loan on the tip of the button of their mobile handset and get funds directly into their bank account anywhere, anytime and also build their credit profiles. In my view, this is the true form of loan digitization and financial inclusion.

What ways micro-lenders play the game?

There are handful of NBFCs which directly lend through their books via the digital channels like proprietary mobile apps and other digital touchpoints. Then there are many FinTech companies, with no NBFC license but technology experience, are usually the digital marketplace aggregators which help in sourcing the customers and connect them to one or more financial institutions (FIs) like NBFCs/Banks. They undertake some or all of the lending activities like lead sourcing, onboarding, underwriting, loan servicing, soft collections etc. depending on the profit/risk sharing commercial arrangements they set with such FIs.

How do they offer?

Micro-lenders generally offer unsecured personal loans usually via mobile apps which starts with Rs 1500/- up to Rs 5,00,000/- for 15-180 days. Loan amount and tenure gets enhanced basis risk profile of the customer which also includes good repayment history. Apps enable users to set up their account in seconds and by filling out a set of questions and by updating all KYC documents, users get a decision on their loan application within minute(s). Once KYC is approved and customers’ consents are in place, loan agreements get electronically signed and basis the risk profile of the customer, applicable loan amount is disbursed within minutes directly to the bank account of the customers. Advanced machine learning and artificial intelligence (AI) technology at the backend in real-time help to analyze the purpose of the loan as well as the repayment behavior of the users by using not only the traditional parameters like bureau credit scores but also social media behavior, KYC checks, alternate data like mobile bill payment, other utility bills payment pattern, payment behavior on e-commerce platforms etc. Such technology advancement has opened the credit doors to New to credit (NTC) customers as well.

India has seen a paradigm shift in the methods of financial inclusion and technology is one of them. Digital micro-lending employs technology solutions for accelerating lending processes and enabling easy repayments. It not only helps in making the lending process easier for both the lenders and the borrowers, but it also reduces the costs of operations significantly.

The scope of digital lending increases manifolds when integrated with solutions like offline mode and multi-lingual support, especially in countries like India where the diversity of languages and the lack of proper internet in certain remote areas can cause hindrance to the lenders. The wider reach allows microlenders to ensure that the truly unbanked can be empowered with bigger opportunities to overcome challenges and get a chance at a better life, which they deserve.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Ilica Chauhan

Vice-President, CashBean part of P C Financial Services Pvt Ltd

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