Digital Lending Sector Is Expected To Exceed $720 Bn By 2030: Lentra's Hitesh Sahijwaala
In an exclusive interview with Hitesh Sahijwaala, Executive Vice-President of Sales and Distribution at Lentra, a leading digital lending platform, we delve into the challenges hindering financial inclusion at the grassroots level of the Indian economy and the innovative solutions driving change in the lending ecosystem. Sahijwaala shares insights on the transformative role of data science, advancements in digital lending and the untapped segments yet to be explored.
What are the challenges that prevented financial inclusion being available to the grassroots level of the Indian Economy?
While the efforts towards financial inclusion started in the 1950s, the challenges resulted from a multitude of factors. The lack of requisite technological infrastructure, digital penetration, data sources and financial literacy prevented large segments of the population to remain excluded from the financial ecosystem. Availability of credit was thus a premium resource accessible only to those financially secure.
What are the innovations in data science that enabled lenders to overcome those challenges?
The rapid digitalisation in the country created reach and subsequently huge data banks, which created an opportunity to service segments of the population that were perceived as high-risk. Innovations in open banking, data analytics and advanced AI/ML algorithms by fintech companies are now helping lenders democratise credit. To give an example, creation of BNPL has not only made credit accessible to the last mile but also gives them the chance to get automated instant credit, which was unthinkable a decade ago. As the technology progresses, it will keep on finding solutions for different use cases, like credit on UPI is now catching momentum. The rise in flexible payment options has led to capturing of demographics across different age groups, socio-economic backgrounds and geographies.
What are the segments that have been covered and the impact that lenders have delivered?
Traders, SMEs, farmers and street vendors are some of the prominent segments that have been empowered through advancements in data science and analytics in the lending ecosystem. This technological transformation by bank tech companies not only automated various important operations of lenders but also enabled them to go beyond data science.
If you see, these sectors were tapped by the efforts from the regulator and government towards rural finance and priority sector lending, which opened the gates for banks, NBFCs and fintech companies to innovate and deliver.
For example, Lentra’s AI intelligent lending platforms, which have an extensive API-based microservices network, enabled lenders to make instant loan decisions and accelerate digital lending options for their cattle loan journeys. It enabled smooth credit disbursement for all stakeholders.
What segments across the grassroot level of the Indian Economy are still untapped?
Digital lending in India is undergoing a transformative phase in 2024, driven by the government's digitisation initiatives and the emergence of innovative FinTech companies. The sector is expected to exceed USD 720 billion by 2030, with a significant contribution from products like Buy Now Pay Later (BNPL), Invoice-based lending and P2P lending.
A key factor in this growth is the increasing financial and digital literacy, especially in rural areas, where access to organised credit was previously limited. UPI transactions are forecasted to exceed 160 billion by 2025-26. Introduction of Credit Lines simplifies approval process, offering flexible financial resources through UPI. Hence, the above statistics indicate that MSME, Home Loan (Affordable and Premium) and Credit on UPI will contribute to more than 65 per cent of the AUM of the Banks and NBFCs.
What kind of innovations could enable access to credit for them?
The widespread adoption of smartphones and high-speed internet has made digital lending products accessible to over half of India's population. The integration of Aadhaar and eKYC has simplified consumer access to digital lending, benefiting even the MSME sector, which forms a substantial part of India's GDP.
The India Stack, a comprehensive digital public infrastructure, has been pivotal in reducing banking costs and enhancing access to financial services, thereby transforming India's cash-based economy. This has allowed digital lenders to significantly reduce user verification costs and offer real-time mobile payments.
AI-powered models reduce lender risk with more accurate inputs than traditional methods. Reports show AI can boost automated decision making by 70-90 per cent, increase approvals by 30-50 per cent and improve overall approval rates by 15-40 per cent, while lowering loss rates by 10-25 per cent.
