Next Gen NBFCs: A Vital Force In Shaping India’s 2047 Vision

The ‘Vision Viksit Bharat@2047’ plan, unveiled by the Union Government earlier this year, envisions India as a superpower. The plan creates a roadmap for making India the world’s third- largest economic power. The initiative resonates with India’s aspirations and aligns with its citizens’ readiness to work diligently towards achieving the goals.

Bharat’s economic expansion, fuelled by growing credit demand, necessitates a focused initiative to bridge the persistent credit gap for sustainable and inclusive development. Despite advancements, accessing formal credit in rural and semi-urban areas remains challenging. For universal and sustainable progress, the country’s extensively underserved populace has to be empowered through the democratisation of credit. A vast majority of India’s rural population, constituting over ~65% of the country and MSME’s which contribute ~47% to GDP, needs to be included in the credit universe. Closing this gap is crucial for comprehensive economic development, aligning with India’s vision of achieving developed country status by 2047.

NBFCs can prove a powerful force in accelerating financial inclusion by leveraging technology. Going forward, I see NBFCs playing a more vital role in taking India towards mission 2047 – with the aid of technology. If financial inclusion is a battle, NBFCs with its vast reach and niche knowledge are the foot soldiers with technology as their weapons.

The NBFC movement

NBFCs have taken rapid strides in fulfilling the credit gap across sections of society. They have expedited credit availability, streamlined customer onboarding, screening, lending decisions, and risk frameworks. Moreover, they have begun to provide flexible loan options, making credit accessible to borrowers who may not meet the stringent requirements of traditional banks. The NBFCs have also tapped the potential of customised financial products to cater to specific customer needs, creating a better experience.

Digital tools like eKYC, eSign, eNACH, etc., are not only making lending more convenient but also accessible to a wider range of mobile users. NBFCs are deploying technology to process and disburse loans faster, implement real-time credit decision systems, and
facilitate seamless, fully digital transactions. A combination of technology, agility and innovation has enabled NBFCs to strengthen the financial ecosystem and become pivotal players in mitigating the credit gap.

The next step
To unlock the next level of credit growth and penetration, NBFCs must now leverage more sophisticated tools, including Artificial Intelligence (AI), Machine Learning (ML), and Robotic process automation (RPA).

A significant domain of technological interventions for NBFCs will be developing alternative credit scoring models. Traditionally, most credit decisions are based on financial and accounting data in conjunction with credit scores provided by credit bureaus. Resultantly, individuals with limited or zero credit history, such as small entrepreneurs, find it challenging to obtain loans. NBFCs can deploy technology to evaluate alternative public data sources such as utility bill payments, GST (goods and services tax) filings, order books, social media behaviour, and transaction history, etc., along with a human approach of reaching, assessing and customising the credit offers helps in bridging credit gap. It will enable them to extend credit to previously underserved population segments.

Further, RPA technology can streamline operational workflows, increasing productivity, accuracy and cost savings. As we speak, NBFCs are actively experimenting and beta testing with distributed ledger technologies for various use cases such as e-KYC, data exchange, loan disbursement, and collection and cyber security. Their IT teams are building and testing application programming interfaces (APIs) to facilitate high-speed inter-connected ecosystems between the various institutions, stakeholders and customers.

Apart from sourcing and disbursement of loans, technology can also help in enhancing operational flows and formulating robust strategies for collections and arresting the delinquency. We are seeing many FinTech companies tying up with NBFCs in experimenting with automated back-end and middleware software applications to make the origination and underwriting process swift, structured and transparent. Again, using advanced analytics and AI, entities are developing models that will flag off potentially risky loan accounts to enable the borrowers to work with the lenders for proactive mitigation measures.

Also Read | NBFC leveraging Artificial Intelligence and Machine Learning to automate business processes

By adopting new-age technology, NBFCs can harness their reach, penetration and nimbleness to craft solutions to bring more people in India under the organised economic ecosystem. When more people can receive access to faster credit, it will unlock more opportunities for everyone, especially the smaller entrepreneurs, to grow. With NBFCs at the wheel, technology will be one of the vehicles that make India a developed economy by 2047.

Views expressed by Umesh Revankar, Executive Vice Chairman, Shriram Finance