Empowering growth for all by bridging the credit gap

India is expected to become the world's third-largest economy by FY 2028, with a projected GDP of $5.2 trillion, surpassing Japan and Germany. This growth is primarily due to the remarkable expansion of the micro, small, and medium enterprises (MSME) sector, which currently consists of approximately 63.4 million MSMEs. However, despite this impressive economic narrative, India faces a significant challenge - constrained access to formal credit.

The credit gap in the MSME sector alone in India amounts to a staggering ₹25 trillion, with less than 10% of the Indian population having access to formal credit. This leaves over a billion individuals excluded from the financial mainstream and the overall debt demand from MSMEs in the country amounting to ₹69.3 trillion.

The World Bank data highlights that India's domestic credit to the private sector is only 55% of its GDP, significantly lower than the global average of 148%. India also lags behind economically robust Asian nations such as China, South Korea and Vietnam.

As India strives towards economic pre-eminence, it is crucial to address this credit gap to ensure sustained and inclusive growth. Enhancing access to formal credit, particularly within the MSME sector, is imperative to ensure the country's economic resilience and prosperity.

Sandeep Mathur

The conventional process of accessing credit, primarily through banks or financial institutions, has long been characterised by the submission of paperwork and a subsequent waiting period for a decision. However, this process poses a formidable challenge, particularly for individuals with limited credit history or unconventional financial circumstances, as it heavily depends on credit scores and historical data. Consequently, it potentially leads to the exclusion of certain applicants, which is accentuated for customers who are new to credit and lack a substantial credit history.

Traditional lending institutions' sluggish adoption of digital reforms and essential technology is compounding this challenge. The hesitancy to embrace technological advancements increases operational costs and diminishes competitiveness for financial institutions. As a result, these institutions struggle to keep pace with the dynamic needs of customers and experience overall inefficiencies in the lending process.

The modern landscape of digital financial enablers is fundamentally reshaping credit accessibility, especially for segments historically underserved. These entities leverage digital onboarding, assimilating vast amounts of critical data for making credit decisions via API’s and technology-driven underwriting processes, ensuring precise risk assessments, swift loan approvals, efficient disbursements, and streamlined collections.

A prime example is Lentra, which strategically addresses industry challenges, enhancing credit accessibility through its comprehensive Intelligent Cloud lending platform. Lentra's approach is distinguished by utilising cutting-edge technologies like open APIs and artificial intelligence (AI), enabling automated loan approvals. This expands the banks' reach and enriches customer engagement while reducing operational costs. Serving over 50 banks and financial institutions in India and Southeast Asia, Lentra processes a substantial volume, having disbursed over $27 billion worth of loans and processing more than 2 million loan applications every month on Intelligent Lending cloud platform.

Crucially, the offerings of firms like Lentra extend beyond conventional creditworthiness assessments. They leverage advanced technologies to monitor loan repayments, eliminating biases in customer interactions and in the process democratising the credit ecosystem.

To further showcase such digital tools and foster discussions on expanding credit access, Lentra is organising the Lentra Digital Lending Summit 2023 in association with CNBC-TV18 on December 13. This day-long event will bring together leaders from various financial institutions, fostering discussions on the impact of emerging technologies on lending processes and scalability. The summit represents a unique opportunity to mobilise India's lending strength and instigate a concerted effort to transform how credit is sought and delivered. With captivating discussions, insightful interactions, and a felicitation ceremony on the agenda, the Lentra Digital Lending Summit 2023 is designed to become a vital cog in India's economic machinery.

Note: This is a partnered post by Sandeep Mathur, Chief Revenue Officer at Lentra. The views or opinions mentioned in this article are not those of CNBC-TV18, or any of its affiliates.