Navigating Digital Lending Challenges: Insights From Industry Leaders
Following the Reserve Bank of India's (RBI) announcement of increased risk weightage, personal loan lenders have adjusted their rules. The RBI's November bulletin revealed a significant rise in risk weights for consumer credit exposure, affecting commercial banks and non-banking finance companies (NBFCs) with a 25 percentage point increase to 125 per cent.
This change in regulations has led industry leaders to provide insights into the changing dynamics of digital lending.
"Establishing confidence in digital lending is critical," says Aastha Gupta, CEO of Share India Fincap. She adds the significance of using data-driven approaches and technologies to assess the risk of loan payback accurately. She says that for lending decisions, it is important to analyse applicant profiles, transaction histories and credit scores to safeguard both investors and customers.
She also emphasises the need to increase financial knowledge so that customers can distinguish between real and fraudulent loan applications. "It can be difficult to distinguish between real and fraudulent loan applications, but customers should take basic actions to protect themselves. They should be committed to increasing financial knowledge along with awareness. Consumers should do research and verify the legality of loan applications by looking for licenses and certificates. Always be aware of applications that request extra permissions or charge a price upfront. Reviewing testimonials from others and seeking suggestions from reputable sources may also assist users in making educated decisions and avoiding fake lending applications."
Financial knowledge may not be everyone's cup of tea; however, digital awareness can prevent one from becoming a victim of financial fraud when it comes to loans. 'Customers also need to be careful in granting permissions to instant loan apps to prevent them from accessing user contacts and other personal details,' says Nirav Choksi, CEO, and Co-founder at CredAble."
The increasing threat posed by fraudulent loan apps in recent times merits immediate intervention, as these sites target amounts as little as Rs 1,000 to Rs one lakh, focusing on low-income and financially untrained individuals. Illegal entities operating fake apps are attracting loan seekers with lucrative offers. In most cases, fraudulent apps request borrowers to deposit money upfront prior to loan approvals and sanctions. It is always better to keep a distance from such untrusted sites. 'As a prudent practice, always check for a standardized set of terms and conditions that genuine lenders offer. Customers also need to be careful in granting permissions to instant loan apps to prevent them from accessing user contacts and other personal details,' advices Choksi.
He also explains how lending companies need to pay attention to verify a customer's background. With fraudsters fabricating identities by using stolen and false information, combating identity theft and falsified financial information in loan applications has never been more crucial. Digital lenders can ensure nuanced risk decisioning with alternative credit scoring models and, in turn, reduce the risk of fraud significantly.
Choksi addresses the rising threat of fraudulent loan apps, emphasising the need for immediate intervention. He suggests checking for standardised terms and conditions offered by genuine lenders and being cautious about granting permissions to prevent access to personal details. Building customer trust in digital lending, according to Choksi, involves responsible credit practices, ethical partnerships, and leveraging advanced technology.
On the other hand, Chaurasia notes that recent initiatives by the RBI and Google empower customers to differentiate between genuine and deceptive loan apps. To ensure authenticity, he advises customers to download apps exclusively from the Google Play Store, verify association with a registered NBFC, and confirm registration with the RBI. Assessing loan tenure and app transparency can provide insights into the legitimacy and trustworthiness of the lending platform.
"Identification of a genuine customer and assessing the creditworthiness of borrowers is paramount in the digital lending landscape," states Ajay Chaurasia, Vice President: Marketing, Product & Business, RupeeRedee. Credit evaluation involves criteria such as age, income, debt ratio, existing loans, credit score, and alternate data points, providing a comprehensive view of customer risk.
