Fintech firms now hold a 52 per cent market share in personal loans, providing access to credit for individuals who were previously underserved, according to Experian India's white paper.
The penetration of personal loans has seen growth, with increases of 24 per cent in Bihar, 21 per cent in Tamil Nadu, and 20 per cent in Uttar Pradesh in FY'24 compared to the previous year.
Business loans have also surged, with growth rates of 133 per cent in Karnataka, 118 per cent in Uttar Pradesh, and 67 per cent in Bihar, underscoring the transformative impact of fintech on financial access in rural and semi-urban areas.
According to the white paper, fintechs have disbursed over Rs 2,48,006 crore in personal loans and Rs 28,607 crore in business loans as of March 2024.
These loans, typically under Rs 50,000, have largely reached New-to-Credit (NTC) individuals, thin credit file holders, and subprime borrowers, demonstrating fintechs' ability to serve high-risk and previously unbanked segments of society.
Despite the impressive growth, the white paper also addresses the challenges fintechs face in managing asset quality. It notes that loans originated by fintech companies have higher non-performing asset (NPA) ratios than the industry average, a reflection of the higher risk associated with lending to underserved and overleveraged customers.
To mitigate this risk, the report emphasises the need for fintechs to strengthen their risk management frameworks through better data analytics and improved credit scoring models.
The report credits technological innovation as the key driver of the fintech revolution. The adoption of advanced tools, including artificial intelligence (AI) and blockchain, has significantly reduced loan approval times and enhanced transparency in loan disbursement.
Blockchain, in particular, has been highlighted for its role in reducing fraud and improving overall process efficiency. Additionally, the report notes that fintechs are emerging as leaders in sectors like green finance, promoting sustainable projects, and agri-finance, where they have provided critical financial support to millions of small farmers across India.
Initiatives like Digital Public Infrastructure (DPI) and regulatory sandboxes have provided fintech companies with the necessary framework to innovate while ensuring regulatory compliance.
The introduction of account aggregators and open credit enablement networks (OCEN) has empowered fintechs to offer more personalised financial products, further driving financial inclusion.
The report forecasts that fintechs could double their customer base to 200 million within the next three years if they continue to innovate and address current challenges. The paper suggests that fintechs could learn valuable lessons from successful non-banking financial companies (NBFCs), particularly in secured lending, and explore new market segments to maintain momentum.
Manish Jain, Country Managing Director at Experian India, said, "As we move forward, it's essential for fintechs to maintain a delicate balance between innovation and responsibility. While the use of technologies like AI and machine learning allows for greater reach and efficiency, it also requires a strong framework for risk management."
He added, "To sustain this momentum, collaboration will be key--between fintechs, traditional financial institutions, and regulators. Together, we can create a more inclusive and robust financial system that caters to every segment of society. This white paper serves as a valuable guide for all stakeholders, offering a roadmap to navigate the future of lending in India." (ANI)
