By 2030, there will be a $1.3 Tn market for digital financing in India. The digital lending market size is set to grow from $270 Bn in 2022 at a CAGR of 22% between 2022 and 2030, as per the latest report ‘State Of Indian Fintech Ecosystem Q3 2022. InFocus: Neobanks’.
In essence, the decade will see a nearly 5-fold expansion in the total market for digital lending, supported by a number of favourable socioeconomic conditions.
According to a data study, the Indian fintech business will be 60% made up of digital financing by 2030. The expansion of digital lending will be fueled by factors including the spread of formal finance, rising per capita income, and increased internet use, among others.
In addition, the fintech industry is anticipated to have rapid expansion over the next ten years. In terms of the number of soonicorns, it is anticipated to overtake important industries like enterprise tech, edtech, and consumer services.
There are now 33 soonicorns in the fintech industry as a whole, 39% of which are in the digital lending sector. Two other unicorns in the digital lending space are Yubi (formerly CredAvenue) and Oxyzo.
Funding Trends for Digital Lending in India
Amount of funding and total deals: Between 2014 and Q2 2022, the fintech ecosystem as a whole received $6.49 Bn in funding across 447 deals.
Fintech Funding in Q2: With $902 Mn in funding secured across 28 agreements, the digital lending sector recorded the greatest money inflow in Q2 2022 (April–June). It was responsible for 33% of the funding agreements during the quarter and 50.6% of the fintech sector's funding intake.
Deal Spread Reaches Minimal Levels: Digital lending businesses secured $340 million across five deals, accounting for half of the top 10 fintech fundraising deals in Q2 2022. Through just 17% of the agreements, the firms in digital lending were able to raise more than a third of the overall capital.
Digital Lending's Future
The biggest opportunity in India's fintech ecosystem exists in digital lending due to the country's poor formal finance penetration. According to the RBI, the country's credit card penetration rate is at just 5.5%. However, there has never been a greater need for credit in the nation.
The decision to link UPI and credit cards is also anticipated to improve the allure of owning a credit card, which could increase its use in the nation.
New technologies are also being used by digital lenders to digitise and streamline the entire procedure. Vinay Bansal, the founder and CEO of Inflection Point Ventures, claims that “Lending concepts have become more sophisticated as a result of technological advancements and changing customer requirements.”
Peer-to-peer (P2P) lending, which matches borrowers with potential lenders with little to no intervention from a financial institution, is one of the advances in digital lending, according to Bansal.
He continued by saying that P2P fundraising is a popular option for investors because of the low interest rates and simple funding process.
The Account Aggregator (AA) mechanism, which the government has recently introduced, is also intended to simplify processes for NBFCs and fintechs.
The Account Aggregator (AA) mechanism, which the government has recently introduced, is also intended to simplify processes for NBFCs and fintechs. Nandan Nilekani, chairman of Infosys, recently echoed the same sentiment when he remarked, "When the AA system is applied to credit and lending, it will make lending as simple as making a payment."
There is without a doubt enough demand to quickly reach scale, even though maximising the promise of digital lending would require navigating the constantly shifting regulatory landscape.
“Digital lending will only continue to grow in the coming years as fintech revolutionises industries,” Bansal said. “Digital lending startups are taking advantage of opportunities to expand their activities, and have a better reach to types of clients, both, in terms of funding and product offered,” he added.
