Digital lending has been evolving rapidly in recent times and is reshaping how Indians avail of credit. The fintech era has enabled easy, quick, convenient access to loan facilities — especially for youth who represent a burgeoning section of India’s population. However, it is crucial to strike a balance between promoting an expanded growth while upholding sound lending and borrowing practices.
Empowering India's youth through digital lending
India has a thriving digital lending industry, providing banking and financial services to millions of citizens. Over the past 10 years, the country has witnessed a growth of 39.5% with the emergence of digital lending companies and is expected to be valued at USD 515 billion by 2030. There has been a continued growth for consumer durable loans and personal loans by the young population in India which is primarily driving this growth.
India’s youth is seizing newfound opportunities to fulfil their aspirations. They are looking for easy access to credit and financial flexibility to pursue higher education, start new businesses, and deal with unexpected financial challenges. Tech-savvy millennials and Gen Z, who make up a large portion of this demographic, are leading the way in adopting modern lending schemes and this approach not only ignites their ambition but also boosts India’s economic engine.
The regulatory structure safeguarding responsible behaviour
A robust regulatory framework has been put in place to guarantee that this growth is both healthy and beneficial for all parties involved. RBI’s Digital lending guidelines ensure that consumer interest is protected while ensuring a safe and secure lending environment. It also gives a boost to consumer confidence in the digital lending ecosystem.
Besides, the Digital Personal Data Protection law further ensures safeguarding of consumers personal data while encouraging companies to create a robust infrastructure with new age technologies to store the data.
These measures create a safer, more transparent digital lending environment, focusing on borrower welfare and security.
Responsible borrowing: A two-way street
While responsible lending is important, it is equally essential for consumers to be responsible borrowers. Individuals must approach digital credit with a clear comprehension of their financial capacity and repayment capabilities. Irresponsible borrowing can result in over-indebtedness and financial distress, affecting not only the borrower but also the entire financial ecosystem.
Things to keep in mind for consumers when taking a loan
- Individuals must verify their financial needs and repayment capacity before taking a loan. Creating a budget will ensure that they can comfortably meet their debt obligations without jeopardising their other financial goals.
- Individuals must carefully understand all the costs involved such as processing fees, late payment fees, prepayment costs if any, etc. Besides, it is important to consider the tenure of the loan and decide the same basic repayment capabilities.
- Ask for a Key Facts Statement (KFS), a one-page document with all the important information pertaining to your personal loan.
- They should monitor policies and procedures, including interest rates, utility charges, and payment systems. Understanding the total cost of the loan and any potential delayed payment penalties is essential.
- It's important to resist the temptation to borrow more than needed. While it may be tempting to go for additional financing, responsible lending means only taking what's necessary.
- Educating oneself about financial literacy and responsible lending is crucial. This knowledge will enable individuals to make informed financial decisions.
Importance of responsible practices
Responsible lending and borrowing are prudent pillars of the digital credit environment, transcending mere moral ideals to have an immediate impact on economic stability and customer safety. Responsible lending fosters self-belief between creditors and borrowers, reduces the hazard of defaults and non-performing assets, and preserves the integrity of the enterprise. Responsible borrowing simultaneously shields individuals from perilous waves of debt and financial distress by protecting personal credit score scores, facilitating well-timed credit access, and keeping an advantageous borrower reputation.
The way forward: Collaboration for sustainability
As we move into the future of responsible lending and borrowing, the digital lending landscape holds great promise, especially for India’s vibrant youth. Owing to their aspirations and the convenience of digital credit, we are poised for tremendous growth in the sector.
Self regulation of the Fintech industry will enhance collaboration between Fintech companies, regulatory bodies and other stakeholders. This will ensure customer interests are safeguarded and boost innovation to cater to the constantly evolving needs of consumers. Self regulation will further pave the way for curtailing financial frauds, enhance transparency and bolster responsible decision-making. Lenders, borrowers, and regulators must therefore work together to create a robust ecosystem that not only empowers but also protects the country’s ambitions and aspirations.
Akshay Mehrotra, Co-Founder & CEO, Fibe