How digital loans can be a game changer in post-demonetization India

In addition to the shaken and delayed flight from Delhi, risking my timely arrival, the DLAI’s debut conference began as a watch last week at the Taj Lands End in Mumbai.

My attendance at such an esoteric event was serendipitous, courtesy of a kind invitation from Mayank Kachhwaha while we were catching up a few days earlier. Mayank and Gaurav Chopra began India Presta more than two years ago, now a growing digital loan platform and one of the founding members of DLAI.

The association aims to give a much needed voice to this nascent sector, often labeled as “alternative finance” or more generically as “fintech”. Therefore, the conference gave an opportunity too good to miss the opportunity to listen to the professionals of the new era loans in a shared scenario. An even more relevant stage in a post-demonetization world infused with the holy grail called “India Stack”.

“India Stack” is the collective moniker that covers various government initiatives, including Aadhaar and e-KYC-backed authentication, its electronic signature, Digital Locker and a unique payment interface.

It offers an alternative to costly and lengthy procedures such as the collection and storage of paper records, authentication of “wet signatures” and the safe delivery of physical cash. The mix of a cashless approach after demonetization and the power of India Stack should in theory accelerate fintech players from the fringe of our financial system to something as ubiquitous as a mortgage loan.

It is not surprising that it was a full house in the ballroom, with sessions led by a group of entrepreneurs, investors and representatives of banks and non-bank financial companies.

Digital lending models in India, ranging from online markets and online lenders (which originate loans on behalf of traditional institutions or are lent, respectively) to P2P players (connecting individual lenders to borrowers through a Platform) attract differential attention from the Reserve Bank of India).

Although the regulatory position of the former because of its institutional links with banks and NBFC is fairly stable, contrasting P2P players operate in a vacuum with the RBI still to sign their point of view. This cautious approach may be justified after China’s “wild west” experience, where more than 2,000 unregulated P2P companies, many of them fraudulent, have multiplied in recent years.

To what extent can digital lenders tap into the power of alternative customer data (such as social media) and technology to identify new segments? India is one of the world’s most underdeveloped credit markets, with only 12% of households borrowing from formal channels.

Our ratio of bank credit to GDP at 53 percent is one of the lowest among major economies. According to Anand Lunia, a panelist and partner of India Quotient, a venture capital company at an early stage, the market itself is so poorly served that data and technology must only play a part.

But considering the chronic aversion of traditional lenders for automation, one can not deny the increasing role of technology in reducing origination costs by opening unused segments. A syncretic marriage of traditional and digital lenders should be the way to go, especially in a sector where, unlike e-commerce, there is no “one winner to take everything” dynamic.

In addition, with a growing number of industry veterans in their management capacity or the direction investors of these new era companies, any perception that the founders aimlessly for the lucrative loan economy lead the way should be pacified. The recent market correction has ensured that those days are behind us.