Benefits of Digital Lending
- Better customer experience: Digital lending saves applicants from waiting a long time for a loan decision and has a short response time. Banks also spend less time and money managing loans due to this. Banks can handle more loans and products and give borrowers a better experience if they have quick loan approval and money.
- Easy loan disbursement: By reducing geographic obstacles, digital lending platforms have made it possible for borrowers to submit loan applications immediately. They feature simple data entry, a customized user interface, and efficient loan application processes.
- Fewer Errors: Since obtaining an applicant’s information using digital lending is simpler, there are fewer human error risks. The validity of documents can be digitally scanned, speeding up and ensuring accuracy.
- Enhances efficiency: It can undoubtedly increase efficiency while cutting costs overall. Digital lending reduces time, boosts revenue and growth, and strengthens relationships between lenders and borrowers.
Digital Lending and its Regulation
A remote and automated lending procedure known as “digital lending” makes extensive use of seamless digital technology for customer acquisition, the credit assessment, loan approval, payout, recovery, and related customer care. The Reserve Bank of India (RBI) established a framework to control online lending. It is disbursing and collecting loans via websites or mobile apps. It facilitates fast disbursal and lowers costs. However, these platforms frequently engage in risky behavior by lending to borrowers who cannot repay the money. The Reserve Bank of India (RBI) recently established a framework governing the nation’s digital lending market. The RBI launched a working group on digital lending, including online platforms and mobile apps, in January 2021. The panel was established as a result of worries about ethical business practices and customer protection that have emerged as a result of the boom in digital lending activity. Digital lending is one of the fintech industries in India. It has grown significantly from a volume of US$ 9 billion in 2012 to almost US$ 110 billion in 2019.
Furthermore, it is anticipated that by 2023, the digital lending market will have grown to about US$350 billion. Small borrowers without a history of credit history who conventional financial institutions don’t cater to, are among its clients in particular. Short-term loans, especially those with terms of fewer than 30 days, are their primary area of expertise. Commercial banks are quickly integrating into the category of financial intermediaries by either partnering with NBFCs to create synergies or by lending digitally.
To crack down on illicit activity by some participants, the Reserve Bank of India (RBI) has announced the first set of guidelines for digital lending. The RBI created a Working Group on “Digital Lending (WGDL), including Lending through Online Platforms and Mobile Apps to address the issues.” In November 2021, the group suggested more substantial standards for digital lenders; some of these standards have been adopted and are now part of the new standards, while others are still being looked at.
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