Summary:

Credit markets underwent tremendous technological transformation post the global financial crisis. While banks and other traditional lenders continue to be the main source of financing for households and firms, other alternative forms of financing, like digital lending, are gaining ground. Such “FinTech credit” provides direct credit access or facilitates credit access through online platforms.  Additionally, large tech companies are partakers in this digital lending wave by providing credit directly or collaborating with financial institutions (“BigTech credit”). In emerging markets like India, digital lending is evolving as an important source of credit for specific segments like SMEs.

According to a recent study by the Reserve Bank of India, the share of digital lending in the total loan activity has risen greatly for non-banking finance companies (NBFCs) after the pandemic. Similar dynamics are not evident for the lending activities of commercial banks. Such an asymmetry in performance arises due to NBFCs deeper specialization in customer segments and geographies and their scale of technology adoption to provide easy access via digital platforms. Recently, RBI has implemented norms on digital lending to avoid regulatory arbitrage and protect customers.  

Highlights:

• Digital lending modes like FinTech and BigTech Credit are gaining strides in large emerging markets like India.
• The share of digital lending in total loan activity has significantly risen for non-banking finance companies (NBFCs).
• Similar dynamics are not evident for commercial banks.

Article By GEORGE, Ammu

Graphic By GE, Yixuan