FinTech Breakthrough: How India’s digital lending market reshaping its financial landscape


In an era defined by rapid digital transformation, India's dynamic digital lending market has emerged as a high-potential segment and a focal point of interest for stakeholders and investors.
This whitepaper is derived from intensive primary and secondary market research by analyzing the growth drivers, challenges, and impact of disruptive technological innovations which helps businesses to make data-driven and informed strategic decisions.
Read on to understand the prospects of the Indian Digital lending market.

1. While the pandemic has accelerated Indian customer’s adoption of Digital Financial Products, lending remained the worst-Impacted sub-category within the FinTech Ecosystem

Most Likely Scenario Post Covid
  • Digital lending infrastructure and acceptance to grow manifolds as consumers opt for digital lending to avoid in-person visits.
  • Account aggregators, E-KYC likely to be adopted faster in order to reduce costs and time
Most Impacted Segments
  • Distribution partners saw a decline as consumers moved towards digital lending via mobile apps
  • Lenders targeting credits/ loans to brown collar people, such as maids, cab drivers, laborers etc.
Most Demanded Products
  • Low risk products such as short term credit offers
  • Loans against securities
Measures Taken to Shield from the Negative Impact
  • Portfolio rebalancing and redistribution Lenders to reduce operational costs, credit costs to lower the risk and impact of the pandemic
Increased NPAs
  • Non-Performing Assets increased for working capital credit and investment credit during the pandemic along with Consumer credit NPAs increasing from the start of the pandemic in the country.
Reduced Credit Disbursals
  • During the pandemic, the credit disbursal volumes were down by ~80% versus pre-Covid levels with ~50% lenders stopping disbursals altogether as the imposed lockdown created a panic situation within the country.
Declining Profits
  • Short-term profit expectations subdued with ~60% higher credit losses. Further, ~60% of lenders indicated limited or no availability of additional debt.
Advancing Technologies
  • Post Covid-19 pandemic, fin-tech companies are visioning to build a digital spine leveraging micro services architecture, automation, and cloud computing to automate processes and introduce contactless transaction options, virtual cards and Card-Not-Present {CNP} transactions.
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2. Yet, the digital lending market is currently positioned in the growth stage & is evolving with the entry of major digital lending players in the Market

Waves of Change in India Digital Lending Market

Phase driven by entrance of major digital lending players and digital lending aggregators


I: Emerging Phase <2015

  • Prior to the Induction of Digital Lending in country consumers opted for Traditional Lending via Banks and NBFCs
  • Industry has witnessed emergence of NBFCs and Banks adopting to Digital Lending models to fill the credit gap.
  • Driven by investment by increasing internet penetration and ease of access to these digital loans

Increased demand of Digital Loans due to ease and accessibility to loans by NBFCs


II: Growing Phase 2016-2035

  • Expansion of service portfolio which included consumer and business loans for Individual customers and businesses including MSMEs.
  • Traditional lenders such as Private Sector Banks have been enthusiastic adopters of Digital Loans.
  • Increasing trend of Personal Loans, Buy Now Pay Later Loans, Instant Loans and more to fuel the industry.

Industry expected to reach maturity phase with stable digital lending growth and reduced interest rates among major players


III: Maturity Phase >2035

  • Technological development such as integration of AI and Machine Learning to smoothen out the process to be integrated.
  • Intense competition among players leading to reduced interest rates and increasing share of Organized companies.
  • High market Fragmentation as illegal apps and new entrants continue to flood the market with their service offerings.

Market Growth

  • Growth Stage
  • ~107% CAGR on the basis of Overall Credit Disbursed in the Digital Lending Market in India (FY’2017-FY’2021)

Market Nature

  • Highly Fragmented Market with presence of more than 100 players in the industry
Source: Industry Reports, Industry Articles & Ken Research Analysis

3. The growth of this industry is driven mainly by the increasing internet penetration and the rise of innovative business models like Digital Lending Marketplaces

    Rising Internet Penetration
  • Higher penetration of smartphones, increasing number of mobile phone subscriptions coupled with inexpensive data has result in the growth and also supported the awareness and adoption rate of Digital Lending in India’s population.
    Collaboration with Digital Platform
  • The popularity of Digital Lending has increased in India owing to NBFCs platforms collaborating with other digital platforms such as e-commerce, ride hailing, travel, logistics and more, resulting in higher acceptance of digital lending from various customer segments in the country.
    Rise of Innovative Business Models
  • Digital Lending Pioneered by NBFCs, have now resulted in Companies from various segments coming up with multiple new models of doing business such as Digital Lending Marketplaces, PoS Transaction Lending, Bank and NBFCs partnership models and more.
    Enabling Regulatory Framework
  • The Indian regulatory environment for Digital Lending has evolved rapidly.
  • The regulatory framework is supporting the digital lending in India by setting up open architecture layers such as Aadhar, UPI, Bharat Bill Payment System and GST and pushing cashless transactions post demonetization, the government has been actively helping in the expansion of a robust digital ecosystem.
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4. Though, the industry has its own set of challenges like exploitative financialization, low integrity of credit markets, non-robust data privacy & protection in the digital lending landscape

Challenges & Bottle Necks

Exploiting Regulatory Arbitrage
  • A central concern is the adverse effect of digital lending on the stability and integrity of credit markets as the rise in non-performing loans has been associated with an increase in digital credits.
  • New players with little experience enter the market and exploit regulatory arbitrage, but often these players have no/partial obligation to report to respective systems for sharing credit information.
Exploitative Financialisation
  • The low entry threshold of digital financial products, due to their convenience and simplicity for customers, provides fertile ground for exploitative financialisation.
  • Underserved households and MSMEs may be lured into taking up unsuitable and unaffordable digital credits, leading to over-indebtedness and bankruptcy.
Shorter Loan maturities
  • Significantly shorter loan maturities in MSME lending are problematic, as firms need loans with longer maturities to realize productivity-enhancing medium- and long-term investments, many of which include complementary investments in labour, thereby contributing to an improvement in job quality.
  • Data privacy and protection (transparency around the (type of) data being collected and its intended use), cyber security (limited capacities of smaller financial institutions and fin-techs to set up and maintain cost-intensive cyber security systems), and digital divide or even discrimination are some other concerns that plague the digital lending market
Source: Industry Reports, Industry Articles & Ken Research Analysis

5. Consequently, RBI has geared up to make required amendments in the regulations to protect customers and lending institutions.

In India, lending activity, online or otherwise, is governed by following laws, in addition to various regulatory instructions issued by RBI for its regulated entities:

Reforms Details of the measure
Banking Acts

    Banking Regulation (BR) Act, 1949

  • All banks (public and private sector) required to get themselves registered with the RBI for undertaking digital lending.

    Reserve Bank of India (RBI) Act, 1934

  • Besides banks, NBFCs, complying with principal business criteria are required to be registered with RBI as per provisions.
  • The Constitution of India has conferred the power to legislate on matters relating to money lending and moneylenders to the States. 
State Money Lenders Acts

    Some of the salient aspects of these laws are as below:

  • Registration requirement for carrying on the business of money lending in the State
  • Maintaining and providing statement of accounts to the debtors
  • Powers to prescribe maximum interest rate
  • Penalties for carrying on business without license and for intimidating the debtors or interfering with their day-to-day activities, including the cognizability of such offences
  • Dispute resolution mechanism
Supporting Acts

    Chit Funds Act, 1982

  • Those chit funds, which are registered under this Act, can legally carry on chit fund business which involves contributions by each member of the chit receives the chit amount by rotation.

    Companies Act, 2013

  • Companies, which are not meeting principal business criteria for registration as an NBFC with RBI, can also undertake lending activities subject to provisions of the Companies Act, 2013 which prescribes certain restrictions on the loan amount and minimum interest rate for such loans.
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6. Looking ahead, the lending platforms can leverage technologies such as AI/ML to reduce lead times, optimize expenses and attract a larger customer base to reach a double-digit CAGR in the next 5 years

Technologies that will benefit the Digital Lending Platforms

Machine Learning and AI

  • Companies investing in AI and ML can increase revenue by ~34%.
  • Machine Learning and AI assess the solvency of the borrower.
  • They attract clients by analyzing customer behavior, AI and ML can predict who will need a loan in the future, what sum, and when exactly.

Robotic Process Automation

  • More than 50% of banking tasks are performed manually. But in lending, the following procedures should be automated:
    • credit analysis
    • loan approval
    • risk management
    • making reports
    • supervision and other operations.

Cloud Computing

  • Cloud-based lending software does not depend on bank paper documents.
  • Both clients and lenders can work in a common interface where it is convenient to track the status of a loan request and work activities

Application Programming Interface

  • The API connects lending applications and links them with the bank’s server:
  • Onboarding APIs process registration information, the requested amount, term, and type of loan.
  • Customer profile APIs are for credit account monitoring.


  • Blockchain improves lending software and reduces application processing time.
  • Using Blockchain can:
    • Reduce application approval time without paper and manual work
    • Manage loan payments
    • Provide information about transactions online
Source: Interviews with Industry Experts in India Digital Lending Market, Industry Reports, Industry Articles & Ken Research Analysis
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