How NBFCs are bridging the gap to a financially inclusive India, one micro-loan at a time

The Small and Medium Enterprises (SMEs) sector is a critical pillar of the Indian economy. Unfortunately, the sector that contributes more than a third of India’s GDP has historically been challenged in availing timely and tailored financing, which is the lifeblood of any organization.

Legacy lending institutions followed a one-size-fits-all approach and were unable to offer timely, affordable, and appropriate funds to help small businesses survive and grow. This was till digital lending NBFCs started making their presence felt, offering financial services designed especially for small businesses.

The Evolution of NBFCs

These NBFCs did three things differently – a) relied on innovative products that went beyond the traditional term loans provided by banks; b) simplified processes and sped up turnaround time to improve customer experience; and c) focused on financial inclusion, making funds available to a new set of borrowers hitherto unserved by traditional financial institutions.

The small business segment is a core priority for many lenders who have revolutionized the market for these borrowers. Besides simplifying and speeding up the process, digital lending NBFCs have been at the forefront of product innovation, launching tailor-made products that address specific business needs of the small business owner. Moreover, digital lenders catalyzed the pace of innovation, while also scaling their service levels to new heights.

Over the years, digitally-driven NBFCs garnered significant market share in the lending business. Many of these NBFCs became increasingly specialized, with different lenders focusing on different segments. This helped them refine their products and improve their services to cater to the unique needs of their target segment.

More Power to SMEs

The icing on the cake is the risk-based pricing offered by NBFCs. This gave borrowers numerous options, from which they could choose based on their immediate priorities, which could vary from pricing to quick fulfillment to product fit.

Digital lenders have made substantial contributions to India’s economic development by supporting millions of small business owners in their endeavors. This has pushed banks to reconsider their highly standardized approach to lending, which they had been following for years. Many large financial institutions today are adopting digital lending practices, and even partnering with digital lending NBFCs, is a testament to the digital lending NBFC’s contribution to cater to the needs of the small business owners.

(The writer is Head of Operations, Capital Float. Views expressed are personal)