New Delhi: Digital loans speed up the lending process and make credit more accessible to disadvantaged people from low-income backgrounds
Besides the obvious benefits of affordable credit for MSMEs and new creditors or low income groups, here are five other reasons why digital loans trump conventional loans. (Also read: 5 tips for maintaining a good credit rating)
1. Easier application processes
One of the main obstacles to accessing credit is the long and arduous loan application process. From submitting the documents to the time needed for the final yes, a loan can take months to process. With digitization, borrowers have the ability to initiate a loan application remotely at any time. Data entry processes on digital platforms are also much faster and the risk of human error is minimal. Even documents do not need to be physically processed; instead, scans can be downloaded and the whole process is more streamlined and less cumbersome for borrowers and lenders.
2. Eligibility standards for lenient borrowers
Conventional lending processes require borrowers to submit employment history, housing proofs, payslips and asset documents, etc. for a credit score to be formulated. While some of these basic eligibility documents are essential, the rest tend to be a barrier for young professionals and those new to credit. Digital lending opens up the possibility for very underserved segments of society, such as low-income communities and part-time workers, to access credit. Digital lenders often look at other metrics (social media history, online spending, travel history) to determine creditworthiness. This ensures that the door to credit is not only open for those who are financially stable, but helps those who are trying to build a base.
3. Flexible payment options
The digital loan allows borrowers such as employees to have access to a flexible line of credit of up to Rs. 5 Lakh. These loans are generally considered high risk by the big banks, but digital lenders see them as low cost loans. The IMEs for these loans are also extendable and range from a few months to 2.5 years. These loans open up access to credit for small business owners and individuals who may need help with their personal finances.
4. Beneficial for lenders
Digital loans aren’t just good for borrowers; they also offer significant benefits to the lending community. For starters, with the digitization of loan underwriting procedures, much of the workforce can be reassigned to personal relationship building activities with clients. This ensures that lenders can keep customer service at the heart of their business and that the digital aspect does not make their business faceless.
5. Quick decision making
When it comes to lending, the end goal is to best help the recipient of a loan. Tedious verification processes are accelerated using cloud technologies, imaging and analysis. From application and document management to electronic signatures and credit analysis, with digital technology being part of every step of the way, loans are disbursed much faster.
With over 500 million internet users, India’s financial sector is on the brink of a digital revolution. This is especially true for the lending industry where traditional loan disbursement processes are traded for faster digital routes. The preference for digitization and automation in India also stems from the government’s push towards inclusive financial growth and programs such as the PMJDY which has increased the percentage of adults in India with bank accounts to 80%. All of these trends are leading to a paradigm shift in the credit industry that is moving towards greater financial inclusion for previously underserved customer segments.
(Expert commentary from Ranvir Singh, Founder and CEO, Kisht)