Growth of technology-powered fintech companies and lack of proper network of traditional banking systems countrywide have made digital lending a popular alternative in India.

2022 Scenario in India

Compared to a cumbersome loan application process, ease of getting a loan sanctioned digitally has also made digital lending flourish in India.

“2022 was a remarkable year for digital lending in India; this could be a result of multiple factors. Firstly, as a result of the Indian market’s resilience and agility, businesses across the board have picked up again and subsequently witnessed growth. This growth and expansion came with the need for capital. Additionally, technology and digital capabilities have advanced, so have the comfort the average person has to navigate these technologies. So digital lending no longer seemed like a foreign concept but a readily accessible business decision that entrepreneurs and small business owners could make,” said Alok Mittal, CEO, Indifi Technologies.

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“2022 was also the year RBI not only legitimised the role that digital lenders play in the economy, but also set up guardrails so that its growth is organised. The impending Data Protection Bill, the Account Aggregator framework and the RBI guidelines for Digital Lending are all steps in this direction,” he added.

Global Scenario

Compared to India, the 2022 global scenario was, however, not so rosy.

“2022 has been a mixed bag for the digital lending ecosystem globally with its fair share of highs and lows, but the industry has witnessed some critical changes over the last year. With the third wave of the global pandemic raging at the beginning of 2022, we saw a 50 per cent increase in digital adoption, aided by a large degree of internet penetration in the context of India. With an increase in the prominence of UPI and IndiaStack, India has come one step closer to its goal of being a financially inclusive country. Despite these efforts, India is still struggling to bridge the credit gap for its thin-file citizens across tier-2/tier-3 cities and rural areas alike. But this is a great opportunity for fintech startups to tap into this underpenetrated market as opportunities for growth remain abundant,” said Sankalp Mathur, Co-founder and CRO, Niro.

“In 2022, the world has seen the rise of some significant Fintech unicorns across financial services. It is also the year when the Indian fintech platform ‘Open’ became India’s 100th unicorn. But in its entirety, Fintechs have witnessed a significant decline in funding this year owing to global macroeconomic issues. One example would be of Swedish BNPL fintech ‘Klarna’ which saw a drop in its valuation from $45 billion in 2021 to $6.5 billion in 2022. PhonePe’s acquisition of Zest and Cred’s acquisition of CreditVidya shows trends of consolidation and this has led to a decline of funding in the Indian fintech landscape,” he added.

2023 Outlook

It is expected that digital lending will gather more steam in the coming year and will make the borrowing process even more convenient.

“While there is a tightening global monetary cycle on the horizon, India’s resilience and positive macroeconomic fundamentals suggest that we would be relatively insulated from the economic slowdown. The co-lending model (where public banks work with digital lenders) will become more mainstream and widely accepted. Strong partnerships will result in positive outcomes for all stakeholders (banks, fintechs and borrowers),” said Mittal.

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“Things are expected to look up in 2023 for Fintechs globally and especially in India as new initiatives such as Ocen, open banking, and account aggregator strive to drive greater credit enablement and foster a symbiotic relationship between incumbents and financial institutions. It is predicted that digital lending Fintechs will continue to thrive and grow in the new year as credit penetration increases especially in developing economies such as India. Embedded finance platforms and niche-Fintechs are expected to draw in more funding as they continue to scale and drive greater financial inclusivity,” said Mathur.