Digital lending helped push financial inclusion

Speaking at the 12th Mint Annual Banking Conclave, Vishwanathan said digital lending could benefit a host of people and sectors including self-employed, small and micro enterprises and small borrowers deemed uneconomical by the formal sector.

“For the savers, this provides another window of opportunity to get better returns and in doing so, the segment will help bring the informal sector into the formal sector," Vishwanathan said, adding that increasing efficiency to lower cost and improving credit assessment is yet another positive.

“The segment can be viewed as an alternative lending channel from a systemic perspective which could be leveraged for the broader attainment of financial and economic goals. While this movement from traditional to digital lending could be seen as a disintermediation of sorts, it must be seen as a window for additional credit," he said.

According to him, since the availability of official data in fintech credit is limited, any assessment on market size tends to rely on non-official sector surveys and financial disclosures of platforms.

Vishwanathan said the size of the global digital lending market is estimated to have reached about $284 billion in 2016 from $11 billion in 2013, though the growth has been uneven across jurisdictions. “China has a dominant share of this growth. The per capita fintech credit is, however, higher in some countries where the total fintech credit is lower because of lower population," he said.

A Boston Consulting Group (BCG) survey has estimated the size of Indian digital lending market at about $75 billion in 2018, up from $46 billion in 2016, and has projected an exponential growth in the sector over the next five years, Vishwanathan said.

“The basic function of a digital lender is to bring lenders and borrowers into contact; in the process, it provides basic services like loan origination, information exchange and transaction matching, facilitating servicing of the loan, record maintenance, management of cashflows and aiding recoveries," he said.

According to Vishwanathan, RBI has never lagged behind in leveraging the developments in technology; among the major developments that happened in the initial stages, apart from the payment systems, was its introduction of business correspondents.

“The entire framework of business correspondents hinged on the fact that technology-enabled remote banking taking place and is being logged into the system in a brick-and-mortar bank. RBI also extended that to replace the entire approach to branch banking," he said.

He added that the whole concept of brick-and-mortar banking has now given way to banking outlets.

The central bank has leveraged technology within the regulatory framework to help banking services reach a larger number of people, making it economical in the process, he said.

Vishwanathan explained that lending by fintech creditors has added a new dimension to the financial intermediation process.

“Electronic platforms match borrowers with lenders directly over a variety of models, commonly referred to as loan-based crowd funders or peer-to-peer (P2P) platforms," he said, adding the central bank has made it very clear that P2P platforms should not intermediate.

“So, the platforms will only be bringing borrowers and lenders together. It can provide services in the form of information, knowledge-sharing, but should have no lending on the books of P2P platform. We did this because of our understanding of the experiences in some of the other countries which even now allow P2P platforms to lend on their books," Vishwanathan added.