Summary
The Consumer Based Economic Segment has gone through a very tumultuous phase. All types of Banking and Non Banking Financial Institutions have tried to bank upon the same segment. The Uber Rich Indian Population which buys rich items and pays timely is not an issue for Lenders. However, the low income group who struggles to barely meet the basic ends, Micro Lending Comes into Picture. For the low income group buying Bikes and Smart Phones is a necessity for these groups to carry out their daily work. Challenge starts when these low income group default on these Micro Loans.
The Impending Pressure of Achieving a High Lending Growth Rate
The Lenders are trying to achieve a growth rate of more than 40% and if they don’t achieve such growth, its not considered a growth in the present markets . The Banking Crisis in US has made global markets jittery. There is extreme volatility. The main problem doesn’t lie in lending loans to low income groups , the problem lies in NPAS.
What is NPA and what problem it causes in the Lending and Banking system?
Non Performing Assets are those Loans which have not been paid by the borrowers for a long time. These loans are Bad Loans which need to be classified as NPA and same needs to be considered as Loss to the banks .The Lenders and Banks need to provision these losses on quarterly basis to clean their balance sheet.
The Challenge of Bad Loans and Recovery.
Giving Loans is easy but recovering such loans is a task .It needs to build a robust system of Loan Reminders to be sent to consumers which is less intrusive and more informative.
Credgenics Start Up
Credgenics is a five year old start started to streamline loan collection system. It helps in sending reminder to customers via chatbots, tele callers, messages as per the demand and need of situation customer wise .The Lenders ca upload borrowers data on their programming interface and set rules for sending reminders via different channels of chatbots , tele callers , messaging for loan repayment.
Credgenics App stores the route of collection agents for loan collection n cash mode. If the borrowers have accounts , loans can be collected via NACH Auto Debit Mandate which can be set up in borrowers Bank Account. If the loan turns Bad , the app can help in sending legal notices for recovery of loans and supervise the settlement and arbitration process.
The Digital Loan Boom
From giving Loans for Bikes, Cards, Washing Machines, Appliances and Smart Phones , the digital lending scenario has changed to rent now pay later and marry now pay later. The Digital lending Business in Indian amounted to 270 Billion$ last year will cross 1 Trillion$ by 2030.Consumer Credit Retail Loans give more than 18-20% return for new Banks Like IDFC.
Wider smart Phone Usage , Greater and Free Accessibility to Credit Score and Bank Accounts
The Wider Smart Phone Penetration , free accessibility to CIBIL Scores and greater number of saving bank accounts in past 5 Years have led to Digital lending Boom .
Digital Lending Segment and the Manual Loan Recovery System
The Loan Collection in Cash is carried out by Field agents which collect Cash from Borrowers and Pocket the interest till the end of the month. Till then they utilize that amount as pay day loans to other borrowers which is an act of fraud . To cross check such things Credgenics came up with an idea of automation system of loan collection and supervising field collection loan agents routes and also eliminating unnecessary cash collection by connecting the loan amount to NACH .This has helped counter such issues in a major effective way.
The Challenge of Digital Lending by Start Ups and NBFCs
The Challenge lies in startup funding which has dried up post pandemic. The investors are much more pragmatic in their approach to fund any NBFC or Start Up. They want results , they want beak even of profits . The Consumer Credit and Micro Credit Segments targeting low income borrowers has got huge potential. However, the intent to re pay the Loan taken is one of the most important issues and challenges which can be tacked through Artificial Intelligence.
