What are Unsecured Loans or Borrowings? How did they emerge in India?

Domestic factors such as the ongoing Covid-19 pandemic, NBFC defaults, and the bad loan crisis in the Indian financial system have created a widespread lack of credit in the system. This has put the Indian P2P lending institutions in a favorable spot paving a roadmap for the rapid growth of the P2P lending industry in India.

The Future of Unsecured Lending: Small Ticket Size Loans & Quick Disbursals

TransUnion CIBIL Market Insights show that inquiry and new loan origination volumes have grown at over 32.1% in Q3 2019, with unsecured loans [Personal Loans, Consumer Loans, Credit Cards] being the primary drivers of this growth. Secured loans have shown stagnation or moderate growth in 2019 over 2018. The growth rate for unsecured lending, including loan originations to personal loans, finance and consumer durable goods, recorded strong growth rates. Fintech lenders (either by mode of partnerships with leading NBFCs or by acquiring an NBFC license themselves) have begun lending operations in the Consumer and Personal Loans segment which recorded a strong growth of 133.9% YoY in Q3 2019. This growth in count of new loan originations is accompanied by the emergence of a consumer segment picking up an average loan amount of Rs 20,000 or less. Banks continue to play in the average ticket size bracket of Rs 300,000-400,000 & above, while traditional NBFCs showed a drop in their ticket sizes from 1.93 million to 1.20 million YoY in Q3 2019 showing that consumers are increasingly applying for small-ticket loans.

2020 & Beyond: The Emergence of Unsecured Lending in India

Proliferating the market, the trigger to the next phase of evolution is the emergence of diverse types of FinTechs that are carving a niche by targeting young consumers in highly urbanized areas and smaller loan products. India’s FinTech lending market is showing interesting growth with a remarkable average of 57.9% FinTech users. While China leads this figure with an average of 83.5%, we’re way ahead of the developed countries that lag behind at 34.2%.

According to the World Bank estimates, the credit demand and supply gap in India alone is $380 billion. The reason behind this gap is loan denial based on a low CIBIL score or a lack of borrowing history. P2P platforms are striving to fill this gap by providing eligible individuals to borrow loans. As per Statista, the total transaction value of the alternative lending segment in India will be $125.1m by the end of 2020.

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