Credit is here to stay, new lenders beyond banks to play bigger role


Money has always been important to every individual as it holds the buying power to every need. Indians, traditionally, tend to follow the ‘savings first’ rule to fulfill majority of their needs and desires. However, the needs and desires of the new age consumer are only growing, and rightfully so, the credit industry is always.

This is not a new concept in India. The banking and money lending business has been around since ancient times. In fact, archaeologists have unearthed evidences of loans and money lending from as early as the Vedic Period.

The foundation of the entire business of loaning amounts of money to those in need was laid early on, but it did not evolve significantly until the middle ages. It was the Mesopotamians who came up with the idea of charging interest on loans. Back in the day, wealthy traders and merchants lent loans to farmers and other members of the lower income group in dire need of money. In return, the borrowers would have to pay their debts either in the form of a barter exchange or by working for the lenders on their lands. This, at times led to exploitation of the peasants as the rate of interest charged would be exorbitant, thus turning them into slaves.

From enslaving borrowers in the medieval times to the modernised banking and lending system, we’ve come a long way.

Some practices followed by people in the medieval era are relevant even today. Like early Italian pioneers, who set up stalls in the local markets to provide loans and the borrowers were expected to repay them at regular intervals along with an interest. That is where modern day banks get the idea from. These banks too, have evolved over the years with changing consumer trends and behaviour and also with technological advancements.

From offering a simple loan in the past; today, consumers have an array of products to choose from, as per their requirement. It ranges from Education loans, Housing loans to Car loans and so on.

Emerging as an alternative to mainstream banking, NBFCs have also been playing an important role in bridging the credit gaps, i.e. in meeting the increasing financial needs of the underserved and unbanked areas in the corporate sector, unorganized sector and also for the local borrowers.

In another form of borrowing, India has seen a steady rise in the number of credit cards being used. According to the Reserve Bank of India, in January 2017, a total of 28.8 million credit cards were in operation. Credit cards, also known as revolving credit, have been the preferred choice of masses as it enables repetitive use for daily purchases that can be paid back in instalments on a monthly basis.

Banking and Financial services have now transformed into the digital world which has made the pathway to the Fintech companies in India. According to PwC research, over 95% of financial services incumbents seek to explore FinTech partnerships. This is also in line with the efforts undertaken by the governmental towards promoting digitisation of financial systems and reducing cash transactions in the economy.

The industry has effectively seen a shift in the consumers’ focus towards digital alternatives for most of their financial transactions/ requirements. The rise of Fintech in India has introduced many changes in the lending system and has also given rise to peer to peer lending platforms.

Earlier, people only borrowed when there was a dire need of money to satisfy their very basic need for survival.

However, the trend has now changed where borrowing is undertaken to not only satisfy needs but also growing desires and even to uplift the status symbol, at times. The millennials of today are well aware of the risks involved and also capable enough to make an informed choice. Additionally, with the introduction of digitalization, the process of borrowing has become easier than ever before.

To summarise, lending borrowing practices have always been there in the country, right from ancient days.

The concept has only evolved over the years suiting the ever-changing needs and lifestyle of the citizens from time to time. Borrowing will continue to take place in the times ahead and the lending platforms will only continue to find ways to make the process more and more convenient with the advancement of technology.

The current trend of online peer-to-peer lending platforms is set to only increase in industry size as borrowers and investors look at these platforms as great credit and investment opportunities, respectively.moneycontrol