The creative minds of the nation fuel the Indian digital lending landscape, whether it’s seamless UPI payments or instant loan disbursement. According to a recent report by IIFL FinTech, the Indian digital lending market is expected to grow to an astounding $515 billion by 2030. Let’s dive into the details and understand the key factors behind this growth.
- The Power of Customer Data: Digital lending companies in India effectively leverage customer data to target loan offerings. With such a large database, they can tailor loan options to suit borrowers’ needs and preferences. The availability of this data has been a significant driver of growth in the digital lending industry.
- Higher Margins and Growth Potential: The digital lending space offers better profit margins than other fintech business models like payments and financial services. This factor has attracted significant investments, with over $1 billion already invested in the Indian digital lending market. The industry estimates suggest that the book size of digital lending companies in India will grow from $38.2 billion in 2021 to nearly $515 billion by 2030, representing an impressive CAGR of 33.5%.
- Impact of the COVID-19 Pandemic: The digital lending space faced challenges during the COVID-19 pandemic. Lender defaults reached around 10-15%, causing concerns about counterparty and operational risks. The situation worsened as many lenders depended on outside service providers. Between 2013 and 2019, non-banking finance companies (NBFCs) faced a credit crunch and took on significant risks. The report highlighted that non-performing assets increased from 3.6% to 6.6%.
- Co-lending as a Risk Mitigation Model: To address the risk exposure faced by lenders, industry experts predict the emergence of co-lending as a marketplace model in India. Co-lending will allow lenders to collaborate and share the risk, improving credit flow and reaching a wider customer base. This model will drive technology integration and enhance digital lending companies’ growth, assets, and profitability.
As the Indian economy solidifies as the world’s fifth-largest, it will achieve remarkable milestones in the digital lending landscape. With the power of customer data, higher profit margins, and adopting co-lending as a risk mitigation model, the industry is poised for further expansion. This growth will benefit lenders and result in better credit availability and improved financial services for borrowers in India.
