2022 roundup: NBFCs tech-based innovations


Non-banking financial companies (NBFCs) have been critical in serving the financial requirements of individuals and businesses that have historically gone unmet or underserved by banks. However, NBFC laws have recently been stiffer, borrowing costs have risen, and NBFCs are focused on niche markets and personalised products and services. NBFCs are currently concentrating their efforts on producing innovative products and serving low-income urban customers in unorganised sectors.

NBFCs are embracing the business and operational models that are backed by technology that enables the smooth design, launch, implementation, and execution of customised goods and services.

New-age NBFCs are leveraging partnership networks across the value chain of lead generation, client onboarding, underwriting, credit/loan disbursement, and collection more than ever before. AI, machine learning (ML), and big data have enabled lenders to measure individual customer insights and develop alternative credit scoring algorithms. Mobile and smartphone penetration has enabled NBFCs to connect with low-income customers who can utilise their mobile devices throughout the lending cycle, including application, engagement, e-KYC, and e-signature for disbursements. RPA has enabled the streamlining of operational procedures, boosting productivity, accuracy, and cost savings.

Hardika Shah, CEO and Founder, Kinara Capital shares that, “The MSME sector is considered a pillar of the country’s economy due to its immense contribution to employment and income generation. At present, the 63 million MSMEs in India account for close to 30 per cent of the country’s GDP. As the country moves towards becoming a $5 trillion economy, it is imperative that the biggest hurdle for MSMEs, which is access to formal credit, is resolved. That’s where last-mile NBFCs are making a difference by servicing niche credit demands, taking a different approach to credit assessment often without the requirement of property collateral. In the last financial year (FY22), NBFCs loans grew by more than 10 per cent which was almost double of bank loans signaling the rapid demand for simplified access to credit.

As India continues to be the world’s fastest-growing major economy, key drivers of growth for increased MSME credit can be attributed to: (i) Rise of India’s Exports and (ii) India’s Growing Urbanisation. MSMEs already contribute to nearly 50 per cent of its exports. In 2022, India’s exports have grown by 37 per cent YoY so this is an important sector driving MSME credit demand. India is estimated to have 50 per cent of its population living in urban areas in the next two decades. The rapid urbanisation is causing high demand for products so domestic demand continues to rise creating more opportunities for MSMEs.”

Arun Nayyar, Managing Director & CEO, NeoGrowth, stated that, “New-age NBFCs are increasingly leveraging analytics and data science for credit decisioning to speed up the loan process for MSMEs, making credit more inclusive. Assessment of creditworthiness by data-based statistical models brings objectivity, making the underwriting process scalable, and widening the coverage. The second dimension of improving reach is simplifying the entire loan application process for the customers.

Cashflow-based lending now has momentum, fuelled by the increasing adoption of digital payment modes by small merchants. Digital transactions, which can be easily verified, bring reliability in assessing the health of the business.

A strong technology ecosystem in India for financial services will be a catalyst of MSME lending in the coming years. We are already seeing the adoption of the Account Aggregator ecosystem, Digi Locker, and India Stack, which is simplifying lending. Such progressive developments will enable more entrepreneurs to build and scale their businesses easily, unimpeded by metrics such as credit scores and tax returns. 2023 will be a crucial year for MSMEs as India moves a step closer to realizing its USD 5 trillion vision.”

Suman Saurav, Head – Technology, Arka Fincap Limited, stated that “The technology used by NBFCs is likely to continue evolving in the coming year, with a focus on digitalization and the use of innovative technologies to improve customer experience and operational efficiency. A few trends that would dominate the year 2023 would be fintech integration, cybersecurity, and regulatory compliance. NBFCs are likely to continue exploring partnerships and collaborations with fintech companies to source customers, access new technologies, and expand their offerings. This could include incorporating fintech solutions into their existing operations or launching new products and services in partnership with fintech firms. Data analytics and artificial intelligence (AI) technologies would be used extensively to better understand customer needs and preferences, improve risk management, and optimise decision-making. Regulatory compliance would be another area of focus and technology would be leveraged to implement processes and technologies to meet requirements around data protection, anti-money laundering, and other regulatory mandates.

The increased risk-taking capabilities of Gen Z have fuelled the entrepreneurship culture in India and that would impact and expedite the increased technological advancements for NBFCs to support them in their dreams. The India NBFC story of 2023 will be a shining beacon with innovative technologies being implemented along with growth capital being infused from various avenues. Going forward the technologically advanced NBFCs will contribute enthusiastically to the GDP of India.

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