India is one of the fastest growing fintech markets in the world, with an adoption rate of 87 percent compared to a global average of 64 percent, as the finance minister recently said.
Madhusudan Ekambaram, co-founder and CEO of KreditBee and co-founder of FACE (Fintech Association for Consumer Empowerment), says: âThe impact is visible in the personal loan segment, as the process of obtaining loans has become very convenient and faster. Traditionally, banks have relied on physical evidence for due diligence, which included past performance of bank accounts, credit rating, salary evidence, age and duration of the loan, to disburse the loan. This made the whole process tedious and time consuming, which involved a high degree of physical documentation. “
However, with the advent of fintech players leveraging digital lending, the need for physical paperwork has either been eliminated or limited to a large extent.
Why are fintechs gaining so much popularity?
âThe growing affinity of borrowers towards fintech for personal loans can be attributed to their distinctive features, made possible by technology,â explains Ekambaram.
These digital lenders have the ability to extend funding to New-to-Credit (NTC) borrowers, unlike traditional risk-resistant setups like banks and NBFCs.
They offer highly personalized products tailored to the diverse needs of borrowers, with minimal documentation.
Their digitized operations make the whole process quick and very convenient.
Most banks and financial institutions charge partial or prepayment. However, with fintech companies, borrowers can choose those that don’t have partial fees or prepayments.
A personal loan is an unsecured loan that requires minimal documentation. The digital lender assesses the creditworthiness of the borrower based on the following parameters:
- Credit history
- Income level
- Employment history
- Repayment capacity
A loan from the fintech players can be obtained by simply submitting documents such as a PAN card, Aadhaar card, payslips for a certain period and a bank statement for the salary account. Fintech players offer to download these documents online, via a mobile application or a website.
To analyze a borrower’s creditworthiness, lenders use the KYC details (PAN and Aadhaar) to pull the credit reports from the bureau. Ekambaram adds, âThey further use their efficient underwriting algorithms to assess credit score and repayment history, to provide loan approvals almost immediately. “
He further adds, âThey use e-KYC for borrowers to digitally sign loan agreements via their Aadhaar details and mobile phone number linked to Aadhaar. “
While personal loans offered by banks and other traditional setups take around 7-8 business days to be disbursed, some fintech players provide approval within 5-10 minutes and disbursement of the loan amount within up to 72 hours. time.