Access To Formal Credit - How Technology Can Change The Lending Landscape

Gautam co-founded Trustt almost a decade ago, prior to which he held key positions across various companies such as HDFC Bank, Infosys Technologies, and Khosla Labs. He holds a BTech degree from IIT Dhanbad and an MBA from BIM, Trichy.

In the realm of technology and its transformative impact on economies, India has emerged as one of the true superstars. With its GDP growth projected to soar at a rate of 7.2 percent in the foreseeable future, the country's economic trajectory is nothing short of remarkable. However, the real key to sustaining and accelerating this growth lies in a crucial and often overlooked factor – seamless credit availability. The dynamic interplay between GDP growth and credit availability cannot be understated. Access to credit is the lifeblood of diverse business functions, empowering industries to innovate, expand, and adapt to changing market demands. To this end, India has been making impressive strides in fostering a supportive credit environment.

Recent reports reveal a noteworthy 14.4 percent annual growth in credit availability in India between 2000 and 2023, and this trend is expected to persist in the coming years. Both private and public sector banks have achieved remarkable progress in curbing non-performing assets (NPAs). Net and gross NPA levels have significantly reduced & currently hovering around 2.2 percent. This decline in credit risk reflects a robust regulatory environment that effectively balances growth and risk. Despite these encouraging numbers, a startling reality persists: credit penetration in the country is a mere three percent. This points to an enormous unmet demand for credit in India, representing a boundless opportunity for financial institutions and technology-driven solutions to drive financial inclusion and support burgeoning entrepreneurial endeavors.

As India embraces its role as a technological powerhouse, there lies a world of opportunities waiting to be seized. The convergence of robust GDP growth and accessible credit creates a fertile ground for innovation, entrepreneurial pursuits, and economic prosperity. Embracing technology-driven solutions, championing financial inclusion, and upholding effective regulations will be the cornerstones of unleashing India's true potential and propelling it to even greater heights on the global stage.

Latest Tech Disruptions

AI-driven credit underwriting has emerged as a pivotal use case for technology integration in the banking and financial sector. By leveraging AI models, banks and NBFCs can analyze creditworthiness across an extensive array of parameters, providing a more comprehensive and accurate assessment of potential borrowers. This enables FIs to extend credit to individuals with limited credit history, promoting financial inclusion and fostering economic growth.

The advent of Large Language Models (LLMs) has democratized access to powerful generative AI models. LLMs play a crucial role in improving customer support by providing users with information in their preferred language, enhancing user experience and satisfaction. The API-first approach is another significant technological advancement. While already in use, there remains considerable potential for further adoption and development. Creating robust APIs enables BFSIs to collaborate seamlessly with partners, streamlining loan distribution and servicing.

Moreover, Digital Distribution Platforms offer an effective means for lenders to integrate their financial products into partner apps. This facilitates greater collaboration, expands the reach of financial services, and makes products more accessible to a broader audience.

Small Ticket Lending & Its Economic Impact

With over six crore MSMEs currently operating in India, small businesses play a significant role in the country’s economy today and contribute around 29 percent to the overall GDP and 50 percent of our total export. Additionally, MSMEs overall generate a total of over 11 crore employments. Despite such favorable conditions, 60 percent of the MSMEs lack proper accessibility to formal credit. Including these credited-deprived MSMEs in the formal financial credit services ecosystem will act as a major catalyst for the company’s economic growth going forward. SIDBI is actively engaged in nourishing this segment by making credit more accessible.

Government Initiatives

The main role of the government is that of an enabler in creating a conducive ecosystem and several steps are already being taken by the government in this regard. Also, UPI has been one of the key enablers for the entire financial services ecosystem today, wherein over three crore merchants across the country are using it to accept and make payments. This has resulted in a humongous amount of data generated on a constant basis. Based on this user data, lenders are now able to decide on the creditworthiness of an individual. OCEN is another such initiative that may result in a huge jump in flow-based lending.

Future Prospects

The adoption of modern-day technology will no doubt increase manifold in the coming days. Given the rapid rate at which new tech advancements are happening today, I feel that lending companies will begin to implement new technologies into their existing systems & services at a pace faster than ever before. Also, due to the numerous initiatives that are launched by the government, there has been a significant increase in the level of collaboration between the banks and the fintech companies.