The pandemic has brought about a huge change in the business landscape. The MSME sector suffered the most, with limited means to raise credit. Small and medium enterprises were unable to adapt and adjust to the new normal. Since the limited access to credit changed the financing and landscape drastically, the government has now undertaken specific interest in providing incentives to the MSME segment.
Here are some trends in Corporate Lending Industry that are likely to pan out this year:
The growing popularity of peer-to-peer lending
In the alternative lending space, peer-to-peer lending or P2P lending is gaining popularity. It is slowly gaining ground in consumer loans and business loans. In fact, P2P lending has been touted as ‘The Big Lending Re-Think.’
Peer-to-Peer lending platforms work because they cater to the needs of both borrowers and investors. P2P lending facilitates business owners to lend or borrow money without the involvement of any bank or NBFC. And through the help of cutting-edge technology, Fintech platforms have revolutionized P2P lending.
Consumer loans and business loans became a popular means of funding for many corporates during and in the wake of the pandemic. The two main reasons why P2P lending options have risen to prominence are their seamless documentation process and easy disbursement. As a result, they have emerged as a trustworthy option for corporate lending.
During the pandemic, many businesses could not access credit through the traditional route. And thus, P2P became their go-to means for credit. And P2P lending companies have shone through. They have delivered over and beyond expectations during the pandemic, and they continue to be a great option for corporate lending.
Data analytics play a significant role
Data analytics is likely to play a significant role in the assessment of the credibility of applicants, the digital footprint of individuals offers humungous insight into the credibility and payment history of the individual. These aspects are likely to be used meaningfully to assess the credibility, this increases the outreach substantially. Further, AI and big data analytics are likely to facilitate automated underwriting, this will enable financial institutions to extend credit to a larger populace.
Secondary Market for alternative lenders
Alternative lending with small-ticket and customised loans, the lending extended will in turn be sold to financial institutions as a measure to reduce risk. Although this is a usual practice, there is no established protocol on a large scale to mitigate risk. This is becoming a popular means for corporate lending, traditional lenders are also leveraging this alternative lending means to increase their lending pie. Alternative lending is becoming a secondary market which pans across various segments to extend credit.
The emergence of fintech in the credit lending space
Technology has been the core driving force in the finance sector, enabling financial entities to achieve growth, maximize customer engagement, and ease customer onboarding. They ensure customer satisfaction not just through their credit offerings but also through customer service. Today, FinTech companies in the credit lending space are gearing up for a technology-driven future.
There are a lot of Fintech companies which are emerging in the alternative lending space. They can ensure that the credit is offered to the segment which is not covered under the traditional lending business.
They have also cut the bureaucracy and documentation considerably. Thus, the time taken from loan application to approval to disbursement is cut substantially by employing best-in-class tech-enabled processes.
The verification and validation process of the borrower has also become faster. The creditworthiness of first-time borrowers is established by employing their payment history and digital footprint. These Fintechs are also able to design customised lending packages which are conducive for corporates to carry out their business.
Banks partnering with alternative lending and fintech companies
To ensure that legacy banks do not miss out on this emerging opportunity, there has been consecrated effort to partner with fintech companies. Although, banks cannot transform their model completely. There are initiatives undertaken by banks to ensure that they have a play in the alternative lending space. They have tried to expand their lending menus to a large extent. However, they continue to put regulatory norms to the forefront. The framework is reinvented and reimagined to expand its area of operation while keeping in mind the regulatory limitations.
In recent days, the Payments Council of India (PCI) has been in talks with the RBI regarding Fintech firms that provide loan products and credit lines. Fintech firms are also seeking permission from the RBI to offer other ‘traditional’ banking services like savings accounts and debit cards. Partnerships remain crucial for both legacy banks and Fintech firms going forward.
This business space is set to transform drastically over the next few years, the alternative lending business may become an attractive investment option for large corporates. The extent of outreach by alternative lending businesses can be quite significant. This will benefit the MSME segment significantly.
You can avail the advice of TATA Capital to ascertain the best means to finance your business requirements.
07 February 2024
5 mins read
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