Mumbai: Data-driven lending by banks and non-banking financial institutions will help bring formal credit to more individuals and micro, small and medium enterprises, giving the sector an edge over moneylenders, according to research by think tank Indian Software Product Industry Round Table (iSpirt).
“With more digital payments which banks and other institutions can track to determine banking and credit history of a borrower, it will become easier to make loans to small shopkeepers, entrepreneurs and agricultural workers who rely on high interest rate informal loans for their credit needs," said Praveen Hari, a fellow at iSpirt, in his special address at the Mint Fintech Summit in Mumbai.
“What is changing is the number of Internet users in India, which is now at 335 million, with the hockey stick growth of Internet usage with Reliance Jio, (Infocomm Ltd)" Hari added. “The value of digital payments has gone up. With all these digital footprints and data, how do you assemble that product for someone who does not have access to the formal (credit) economy?" he asked.
One way to get around the cumbersome checks of formal lending, according to Hari, is to move the paperwork and clearance process to the mobile. He cited the example of a shop owner who may want a Rs5,000 loan for working capital but can’t afford to take a day off to go to the bank and do the paperwork. “I (the shop owner) need this without moving away from my shop," Hari said, pointing out that the informal moneylender will visit the house or shop, give the money and go, “and again come to collect it (principal or interest as the case may be) later at my shop".
With compliance measures for the goods and services tax (GST) in place, lenders to the small and medium business segment will have a repository of tax filings to make lending decisions and offer loans. “Seven million GST and 10 million non-GST and 10 million street vendors in the metros are very underserved by the formal economy," said Hari.
But the implementation of GST could change the situation. Once lenders are able to get a consolidated view of the borrowers’ tax returns, they can more easily figure out how much to lend to each prospective customer, he added.