Financial Inclusion, that is availability and equality of opportunities to ensure access to appropriate financial services to every section of the society is one of the primary goals of the Government of India.
Digital lending has become one of the most efficient ways for financial inclusion. It is a process to avail credit through online sources such as web platforms or mobile apps.
It gained immense popularity by the MSMEs during the Covid-19 pandemic as it catered to the underserved businesses and people with many solutions when it was hard to reach traditional lending institutions like banks.
Digital Lending is chosen over Traditional Lending due to various numbers of reasons as follows:-
- It aids in satisfying India’s massive unmet credit demand, particularly among microenterprises and low-income consumers.
- It aids in the reduction of informal borrowings by simplifying the borrowing procedure because these loans are more flexible and handy.
- It saves time by reducing the amount of time spent in-branch processing loan applications. In addition, digital lending platforms have been reported to reduce overhead expenses by 30 to 50 percent.
Thus, the cash-strapped MSMEs have been drawn to these digital methods to get loans because of the rapid turnaround time and on boarding, as well as the simple KYC and payout within minutes.
Along with some of the major advantages, there are a few issues as well. There has been an increase in illegal activities by these unauthorized digital lending platforms who misuse these sources by charging high interest rates, hidden charges, and gaining access to our mobile phones.
There has been an increase in the number of Indian Banks that are transforming and adopting these digital lending services. They are partnering with various Fin Techs to improve the services provided to the customers.
With the increasing popularity of digital lending and to ensure that the lending is done responsibly, the RBI has taken the necessary steps and measures to safeguard the interests of the customers.