Synopsis: In this article, we will describe the factors fueling mobile lending’s popularity along with the elements that make it truly convenient to use.  

The RBI’s latest decision to sanction pre-approved credit lines through UPI has put mobile lending back into the spotlight—not that it hasn’t garnered enough attention already—but it has brought forth the central bank’s commitment to nudge formal lenders into playing a pivotal role in deepening credit penetration in complement to the long strides already made by fintechs.  

Over the years, mobile lending has gained significant traction among the unbanked and underbanked population, attributed in part to the demonetization drive, the ubiquity of mobile phones and internet connectivity, and pandemic restraints. The wide-ranging availability of digital lending apps (DLAs) has simplified the way Indians interact with financial institutions, undergo KYC verification, and access loans. 

With Indian smartphone users expected to grow from 750 million today to 1.1 billion by FY26, India is well on its way to transforming into a mobile-first financial economy. Below, we examine the emergence and growth of mobile lending in India and its vital role in improving credit access and advancing financial inclusion.  

Rethinking Credit: The Limitations of Traditional Lenders 

While the incumbent banks have been the longstanding pillar of Indian lending, they have only been able to address the credit demand of 14% of MSMEs, resulting in a colossal $530 billion credit gap. There are several reasons for this: 

• Poor Record Keeping: As banks majorly rely on credit scores, historical financial performance, and repayment history to determine the borrower’s creditworthiness, the subpar maintenance of financial and governance records by MSMEs runs afoul of good practices, making accessing credit difficult. A lack of collateral further raises the borrower’s risk profile. 

• Cumbersome Procedures: Traditional lending involved multiple documents, lengthy filings, and tedious processes, with some requiring several branch visits. This made the loan application process unamenable and time-consuming, particularly for those located in remote areas. 

• Slow and Subjective Approvals: Being heavily reliant on manual processing, traditional lenders could take up to 2–3 months to process a loan application. Besides, loan approvals entailed subjectivity, with inherent biases coming into play. 

Tracing the Evolution: The Mobile Lending Journey  

Given the $819 million addressable credit demand, numerous new-age startups converged on the scene to offer easy, convenient, and personalized loan products. The government’s demonetization drive had already kicked off the transition to a cashless economy, which ran full-throttle during the COVID-19 pandemic. 

Paired with the JAM (Jan Dhan Yojana, Aadhaar, and Mobile Connectivity) policy and the Unified Payments Interface (UPI), the Indian lending ecosystem experienced a sea change in the way the financially excluded availed themselves of credit. Below, we outline the main factors fueling the uptake of mobile lending, which is the practice of accessing loans from mobile phones. 

• Amplification of Smartphone Ownership: According to NFHS-5, over 93% of Indian households own mobile phones, without major disparities between urban and rural households. What makes this trend even more interesting is the fact that there is a significant overlap between the rising, tech-savvy consumer class and smartphone owners, who have risen from a mere 100 million in 2014 to 700 million today. Armed with phones that cost under Rs. 10,000, Indian households and businesses are interacting and transacting online, leaving vast swathes of data in their wake and gaining access to digital loans. 

• Widening Internet Access: With an average cost of $0.17, or Rs. 13.5 per GB, India features among the top five nations with the most economical internet access. An IAMAI study reports that approximately half of India’s population, i.e., 759 million citizens, are active internet users and are on their way to reaching 900 million by 2025. Equipping smartphones with cheap internet connections has enabled borrowers to access end-to-end digital lending services and raise their financial literacy levels. 

• Rise in consumer expectations: India’s 87% fintech adoption rate, which is higher than the global average of 64%, drives home the strong demand for easy and convenient financial services. Propelled by the necessities of the pandemic, Indian consumers today demand anytime, anywhere finance and complete digital processing of their applications, which is facilitated by their mobile phones, allowing for improved access to digital loans.  

• Advanced technology uptake: Big data, artificial intelligence (AI), machine learning (ML), predictive analytics, APIs, and the like indeed enabled mobile lending to scale new heights. By gaining access to their potential borrower’s digital footprint and processing the data using advanced technologies, digital lenders can now offer bespoke loan products and services, including small-ticket loans, which were unviable to serve with traditional risk modeling.   

• Supportive government and regulatory environment: Mobile lending has been soaring high on the back of the India Stack and Account Aggregator (AA) framework. By enabling easy API connectivity and consolidating several data sources, including banking, insurance, securities, and tax data, on a central platform, the AA system facilitates consent-driven data sharing and processing. The RBI’s policies, such as digital lending guidelines, video KYC, and first loan default guarantee (FLDG) guidelines, have further given impetus to mobile lending. 

Pioneering Change: How Mobile Lending is Reshaping India’s Financial Landscape 

Mobile lending has been democratizing credit access and promoting financial inclusion by not only bridging the digital divide but also aiding individuals and businesses in digitally applying for affordable personal or business loans from the comfort of their homes without having to visit a bank branch. 

• Streamlined Loan Application Process: By leveraging technology, digital lenders have simplified the digital loan value chain and expedited loan approvals by enabling borrowers to complete their applications within minutes, leading to time savings. This attribute particularly came in handy during the pandemic owing to the demand for time-sensitive loans. 

• Enhanced Risk Assessment: Mobile platforms build comprehensive borrower profiles by analyzing alternative data sources, such as digital footprints, transaction histories, and behavioral patterns, facilitating superior risk assessments. This helps them evaluate the creditworthiness of new-to-credit (NTC) individuals, expanding loan access to unserved and underserved populations. 

• Personalized Offerings: Mobile lending platforms have been advancing economic and social empowerment by offering small-ticket loans tailored to the specific needs of their borrowers, including women and other vulnerable groups. Some fintechs have also been contextualizing their offerings and localizing their content for more precise offerings, thereby reducing the risk of over-indebtedness. This also affords borrowers an opportunity to build their credit history.   
• Raising Financial Literacy: With only 27% of adults being financially literate, mobile lenders have taken on a vital role in educating the masses about how the financial system is run. By incorporating educational materials on their mobile apps—like Protium ProGenie—they endow borrowers with the requisite knowledge about financial planning, responsible borrowing, and cash flow management. 

Mobile Lending: The Gateway to Economic Growth and Financial Inclusion  

Mobile lending has proven to be a game-changer in India, opening the floodgates to economic growth and financial inclusion. The easy accessibility and convenience offered by mobile lending platforms have opened up opportunities for aspiring entrepreneurs seeking capital to innovate and fuel their ventures. 

Are financial constraints limiting your entrepreneurial dreams? Accelerate your business’s success by availing of a business loan from Protium. From secured to unsecured business loans, working capital loans, and equipment financing, we offer a wide variety of loans befitting your needs with minimal documentation. Your lack of credit history is no bar. Download the Protium app or fill out our form to apply for a business loan.