Retail consumers can get a loan sanctioned in less time than it takes chai tea). This is how various fintech platforms aim to provide instant gratification to consumers who are looking for easy access to credit in the form of loans. One of the main reasons behind this is that small loans with values below Rs 1 lakh seem to be the most sought after by borrowers.
A report titled How India is ready in FY2021 By CRIF High Mark reveals this little post loans with values below Rs 1 lakh contributed nearly 50% of the overall personal loan market.
Rohit Garg, CEO and co-founder of SmartCoin, an instant personal loan app, said small loans have seen an increase in consumer preference for consumption needs, especially after the onset of the Covid-19 pandemic. 19, and the trend has continued until now, due to various factors.
“Small loans have certainly seen an increase recently, and the transition has been accelerated by the pandemic. This has led to a change in consumers’ borrowing behavior for their personal consumption needs,” he says.
According to a report corroborated by TransUnion CIBIL and Google, millennials (age group 26-41) made up the bulk of retail loan borrower accounts.
So what led to this trend? Here are the details.
Some Recent Trends Observed by Fintechs/Non-Banking Financial Companies (NBFCs)
1. Increased consumer interest after Covid-19: Sucheta Mahapatra, chief executive of Branch, a personal finance app, says he saw demand for loans double during the peak of the Covid-19 pandemic. But at the same time, the debt servicing of the loans has also been halved (due to the moratorium announced by the banks, as well as other factors).
This presented a difficult situation during this period. However, she adds that they are now seeing their platform receive over 20,000 loan applications per day, and their lending platform has also increased fivefold, given that the worries of Covid-19 are now almost finished.
“Covid has been a difficult time for users, as well as lenders. On the one hand, the overall demand for loans increased twice compared to the previous period. But defaults have also doubled. This was coupled with the government moratorium period,” she added.
2. Instant loans are gaining among millennials: Borrowers, under the age of 35, accounted for about 40% of the total personal borrower segment. Gaurav Chopra, Founder and CEO of IndiaLends, says small loans have grown due to both supply and demand, especially from young consumers who are ambitious and seek instant results.
“On the demand side, we’ve seen much higher adoption from younger and early adopters. These customers are savvy and seek small loans for ambitious expenses, not just unexpected expenses,” he added.
Chopra said that to capture the interest of these younger and other audiences, lenders have adapted and upgraded their technology stacks, and enabled a shorter and more secure loan application process, so that the application for loan process is carried out by the end consumer in a minimum of time, and in a convenient way.
“Majority of people preferred the small loans because they offered a fast online process, instant disbursement, better loan management and lower ticket values,” Garg added.
3. Evolution of consumer personality: P2P lending platform LenDenClub has noted that there has been a surge in the mindset of consumers to purchase goods and services through the buy now, pay later (BNPL) mode. According to business loan data analyzed by LenDenClub, this trend began after the second wave of the Covid-19 pandemic and led to changes and increases in consumer consumption and spending habits.
LenDenClub said it saw “a consecutive 60% increase in demand for small loans in April 2022 compared to April 2021”.
“The economy experienced a contracted consumption pattern during the first wave of the pandemic. However, after the second wave (May 2021), as the country witnessed an unblocking of the pandemic, consumption habits increased considerably, causing a rise in the need for credit. Additionally, there has been a significant shift in consumer mindset, especially in the post-Covid era, regarding the acceptance of digital financial products,” said Bhavin Patel, Co-Founder and CEO by LenDenClub.
4. Education Season Creating Demand: An analysis of data on lending companies surveyed by CASHe found that education, followed by home improvement and marriage, were the top three reasons borrowers sought low-cost personal loans. Summers are usually the time when parents enroll their children in schools and colleges. One of the reasons for this was that educational institutions were opening in offline mode and colleges were also holding offline lessons and/or exams, resulting in a “burden for parents to pay the fees on time “.