How to Set Up Digital Lending in India: A Comprehensive Guide

India’s financial landscape is changing rapidly, with the dominance of digital lending on the rise. In the future that had dawned for fintech startups as much as it had done for established financial institutions, credit was offered expeditiously and efficiently through digital lending. The Indian digital lending market is likely to grow at a CAGR of 36% during 2023-2028 and reach $515 billion by 2028. (Boston Consulting Group). It speaks enough for the exponential growth in the market, which may make it the most profitable setup for a digital lending platform.

We are going to walk you through the process of setting up a digital lending business in India. From understanding digital lending, its benefits, and how it works to various types of lenders and how NBFC advisory can add value in helping your business outplay and survive in this fast-paced field.

What is Digital Lending?

Digital lending refers to the fact that loans are distributed on an online platform or through mobile applications rather than through traditional, branch-based banking systems. Every step of the lending cycle -loan application and credit all the way to disbursal and repayment-is rendered digital. This makes digital lending faster, more efficient, and more accessible, especially to underserved populations and small businesses.

India’s digital lending sector has seen an explosive growth from $9 billion in 2012 to nearly $110 billion by 2023, as estimated in a recent report by the Boston Consulting Group. Boston Consulting Group, The sheer potential this sector presents for disrupting traditional lending in India speaks volumes of the growth witnessed.

Benefits of Digital Lending

Borrowers and lenders are discovering the many advantages that digital lending has to offer. Here is why digital lending is on the fast lane:

• Faster Approvals: Nothing beats the notion that traditional loans take a substantial amount of days, even weeks, to process. Now, any digital lending platform will approve loans in minutes or a maximum of hours thanks to smart algorithms and automated systems.
• Convenience at Your Fingertips: Digital lending lets you skip the hassle of visiting a bank branch. You can apply for a loan anytime, anywhere, using just your smartphone or computer. This is especially helpful for people living in rural or remote areas.
• Lower Costs: Automation enables the capacity to avoid large teams and, therefore, can save on digital lending costs. This means better interest rates and even more flexible loan terms for a borrower.
• Reaching More People: Digital lending platforms utilize non-traditional sources of data in making credit decisions, therefore allowing them access to a much larger audience who may not have traditional credit histories. This is particularly effective in reaching underserved communities.
• Better Experience for Customers: With apps and websites that can easily be navigated, lending platforms digitally have a seamless experience. Here, the applicant can find everything- updates related to their loan balance, payment reminders, and everything else all at one place.

According to the RBI Financial Stability Report 2023, around 70% of all digital loans in India were approved and disbursed within 24 hours, showcasing just how efficient this system is.

RBI Financial Stability Report 2023- https://www.drishtiias.com/daily-updates/daily-news-analysis/financial-stability-report-june-2024

Source: https://nbfcadvisory.com/how-to-set-up-digital-lending-in-india-a-comprehensive-guide/