NBFCs have embraced digital platforms, mobile apps to enhance financial inclusion

In conversation with Ajeet Kumar Singh, Managing Director and Co-Founder, SAVE Solutions Pvt. Ltd.

How are NBFCs bridging the financial gap for rural and unbanked communities in India?

Non-Banking Financial Companies (NBFCs) have been pivotal in transforming the financial landscape for rural and unbanked communities in India, who historically depended on informal moneylenders charging exorbitant interest rates. Previously, many rural borrowers faced interest rates ranging from 12% to 25% per annum from informal lenders. In some cases, monthly interest rates were as high as 4% to 6%, translating to annual rates between 48% and 72%.NBFCs have significantly contributed to financial inclusion by providing small-ticket loans to underserved sectors and individuals, especially women entrepreneurs, through the Joint Liability Group (JLG) model. NBFCs have played an exemplary role in reaching the underserved, especially in rural India, by supporting small and micro-businesses with working and growth capital, enabling them to scale without falling into debt traps.

What innovative financial products are NBFCs offering to empower rural entrepreneurs and small businesses?

NBFC-MFIs play a vital role in financial inclusion by providing small, collateral-free loans, primarily to women entrepreneurs, fostering self-employment and financial independence. As of March 31, 2024, India's microfinance loan portfolio stood at approximately ₹4.3 lakh crore, serving over 8 crore unique borrowers. NBFC-MFIs accounted for around 40% of this portfolio, underscoring their growing influence in the sector. To support small businesses lacking formal credit histories but possessing strong business potential, NBFCs offer both secured and unsecured loans. In the fiscal year 2023-2024, the microfinance loan portfolio in India expanded by 19.5%, reaching ₹3.50 lakh crore as of May 31, 2023, serving 7 crore unique borrowers with 13.2 crore loan accounts. This growth reflects the ongoing efforts to enhance financial inclusion and support the micro, small, and medium enterprises (MSME) sector. Moving beyond traditional collateral requirements, NBFCs assess loans based on daily or weekly earnings, providing flexibility to businesses with irregular income streams. This approach has been particularly beneficial for small enterprises, allowing them to access credit without substantial assets. Recognizing the unique challenges faced by farmers, dairy owners, and agribusinesses, Non-Banking Financial Companies (NBFCs) offer tailored loan products that align with seasonal cash flow needs, thereby supporting the agricultural sector's sustainability. As of March 31, 2024, the microfinance sector served approximately 7.8 crore unique borrowers through 14.9 crore loan accounts, with a total Gross Loan Portfolio (GLP) of ₹4.33 lakh crore.

How do NBFCs leverage technology to enhance accessibility and efficiency in rural lending?

Non-Banking Financial Companies (NBFCs) have embraced digital platforms and mobile applications to enhance financial inclusion, particularly in rural areas. These user-friendly digital tools enable customers to apply for loans, track applications, and manage accounts remotely, thereby improving operational efficiency and customer experience. As of July 2023, NBFC credit in retail lending stood at approximately ₹18.6 lakh crore, reflecting the sector's significant growth and outreach. In 2023, AI-powered technologies reduced loan processing times by 60% in India's digital lending market, allowing NBFCs to serve customers with limited or no formal credit history more efficiently. Integrating Aadhaar-based e-KYC processes and e-signatures has streamlined customer onboarding, reducing paperwork and enabling seamless access to financial services for rural borrowers. This digital transformation has made loan processing faster and more efficient, contributing to the sector's overall growth.

NBFCs have adopted comprehensive loan management systems that handle product management, transaction processing, client management, and risk assessment. These systems improve efficiency and accuracy in loan servicing, benefiting both the lenders and the borrowers. By implementing automated credit checks and document verification, NBFCs can approve and disburse loans more swiftly, effectively addressing the urgent financial needs of rural entrepreneurs and small businesses. In 2023, AI-powered technologies reduced loan processing times by 60% in India's digital lending market, highlighting the transformative impact of artificial intelligence in expediting financial services.