India is among the world’s fastest-growing fintech markets, with an adoption rate of 87 per cent versus the global average of 64 per cent, as stated by the Finance Minister recently.
Madhusudan Ekambaram, Co-Founder and CEO, KreditBee and Co-Founder, FACE (Fintech Association for Consumer Empowerment), says, “The impact is visible in the personal loan segment, as the process of availing loans has become highly convenient and quicker. Traditionally, banks resorted to physical proofs for due diligence which included past bank account performances, credit score, salary proof, age and tenures of the loan, to disburse the loan. This made the entire process tedious and time-consuming, which involved a high degree of physical documentation.”
However, now with the advent of fintech players leveraging digital lending, the need for physical paperwork has been either eliminated or limited to a great extent.
Why are fintechs gaining so much popularity?
“The increasing affinity of borrowers towards fintech for personal loans can be attributed to their distinctive features, enabled by technology,” says Ekambaram.
These digital lenders have the ability to extend financing to the New-to-Credit (NTC) borrowers, unlike risk-averse traditional setups like banks and NBFCs.
They offer highly customized products suitable to the varied borrowers’ requirements, at minimal documentation.
Their digitized operations make the entire process quick and highly convenient.
Most banks and financial institutions charge for part or prepayment. However, with fintech companies, borrowers can choose the ones which have zero charges on part or prepayment
Documents required
A personal loan is an unsecured loan that requires minimal documentation. The digital lender evaluates the borrower’s creditworthiness on the basis of the following parameters:
- Credit history
- Income level
- Employment history
- Repayment capacity
A loan from fintech players can be availed by simply submitting documents such as a PAN card, Aadhaar card, salary slips for a certain period, and bank statement for the salary account. Fintech players provide the provision of uploading these documents online, either through a mobile app or website.
Credit-worthiness evaluation
Towards analysing the borrower’s creditworthiness, lenders utilize KYC details (PAN and Aadhaar) to pull credit reports from the bureau. Ekambaram adds, “They further use their efficient underwriting algorithms to assess credit score and repayment history, to almost immediately provide the loan approvals.”
He further adds, “They leverage e-KYC for the borrowers to digitally sign loan agreements through their Aadhaar details and Aadhaar-linked mobile number.”
While personal loans offered by banks and other traditional setups take anywhere around 7 to 8 business days to get disbursed, some fintech players provide approval within 5-10 minutes and the loan amount disbursal in a maximum of 72 hours.