How has Digital Lending impacted Financial Inclusion?

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How has Digital Lending impacted Financial Inclusion?

Financial inclusion or inclusive financing is the process of making financial services available at affordable costs to an individual or a business, irrespective of net worth and size. Financial inclusion strives to address and provide solutions to the constraints that prohibit people from participating in the financial sector. The financial sector has been putting in work and brainstorming to come up with new and seamless ways to provide and implement financial services globally. FinTech or Financial Technology has filled the void and made financial services accessible.

The advent of FinTech has made a way for everyone to have access to FinTech tools and services at a reasonable price.

The concept of digital lending is known to benefit all sectors and a multitude of people; the micro and small enterprises, self-employed and a niche that were denied loans and considered as uneconomical by financial institutes and banks. Digital lending is an added window of opportunity to get better returns, which increases efficiency to lower costs and enhances credit assessment. All of these things will help lead the informal sector into the formal. The segment can be looked at as an alternative lending channel which can be leveraged to achieve broader financial and economic goals instead of seeing it as disintermediation.

The availability of accurate data in FinTech credit is restricted, which is why for an estimate on the market size banks rely on non-official surveys. In a survey by BIS, it was found that the estimated size of the global lending, which was 11 billion dollars in 2013 had reached to 284 billion dollars in 2016 and only ascended upward even though it is uneven across domains. Further, in the same survey, it was noticed in some countries that per capita FinTech credit is higher even when the total FinTech credit is lower. According to a survey done by Boston Consulting Group (BCG), the value of the Indian digital lending market grew from 75 billion dollars in 2018 from 46 billion dollars in 2016.

The primary function of a digital lender is to bring lenders and borrowers connect them together; in the process, it provides essential services like loan origination, record maintenance, management of cash flows, transaction matching & information exchange and aiding recoveries. Platforms like Aagey help the MSMEs and SMEs get the loan they want for the development of their business. They connect the lenders (the banks) to borrowers in a seamless manner.

In conclusion, digital lending platforms have been an excellent factor to boost financial inclusion and enabled the reach of the investor and the borrowers. Not only does the concept help the underbanked or an individual get a loan, but with the growth of these SMEs and MSMEs, it helps the economy grow. Which means it is directly proportional to the development of the country.

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