HomeBlogKnowledge CenterAre Digital Loans The Future Of Lending?

Are Digital Loans The Future Of Lending?

With improved online infrastructure and limitless expansion of internet services, it is that the total value of the digital lending business in the country will exceed $5 trillion, by growing 5x in the next 5 years. What is the reason behind this exponential augmentation in size? Inter-alia, use of advanced technologies and initiatives by FinTech players will have a tremendous role in increasing the availability of financial products and services to the bottom of the pyramid segment, who have otherwise been largely devoid of basic banking, credit and other financial services. 

Enabling first-time credit access to masses

Banks and NBFCs typically target super-prime and prime customers with credit scores above 700, thus widening the gap between the haves and have-nots of the credit arena. As a result, only 10% of small businesses currently have access to formal credit, thus remaining credit-deficient and underserved by big brick-and-mortar investors. 

While the near-prime and subprime borrowers were traditionally financed mainly through informal channels only at an exorbitantly high rate of the capital of 30% or more, P2P lending is catering a large segment of the unbanked and underbanked population. By serving to the low-ticket size, short-term needs of individuals, P2P investors are elevating the barriers to equitable and inclusive credit growth and taking India closer to heightened financial inclusion in coming years.

Potential Market Size

In FY17–18, total lending and deposits grew at a compound annual growth rate (CAGR) of 10.94% and 11.66% respectively. The fastest-growing segment in the emerging markets is the retail credit market, which is the fourth largest. It accelerated to USD 281 billion from USD 181 billion between December 2014 and December 2017. 

Through digital channels, the number of transactions is more than doubled from 6.2 billion in FY16 to 13 billion in 2 years until FY18, indicating a digital disruption in both traditional and modern channels of finance. The FinTech lending market is forecasted to exhibit accelerated progress between 2019 and 2025 owing to factors such as growing internet and smartphone penetration, the thrust from digitisation and regulatory reforms. India’s digital lending market will see a CAGR of 36% by 2023. 

End-to-end digital lending now a reality

Digital lending has significant advantages over traditional lending, with the potential to address prevalent credit-related challenges in India. One of the most distinguishable advantage of digital lending is speedier approval of credit. Credit assessments and loan disbursals on digital lending platforms have visibly quicker turnaround time than traditional loans – particularly for small-ticket credits and advances, which are most common among new-to-credit borrowers. 

Some of the factors why the disbursal turnaround time is significantly lower in digital lending are replacement of paperwork by digital data captures, automated evaluations leveraging on technologies like advanced analytics, artificial intelligence (AI) and machine learning (ML) and no or little in-person visits. 50% of the loan seekers with internet access buy online, the key factor being purely digital and no physical element involved at any stage of the customer relationship.

 Is “Digital” the new normal?

With the current Covid-19 pandemic, there has been a drastic behavioural change in the way people do daily transactions. Health will be a priority for everyone and India is getting ready to ride the digital lending boom. This point is validated by the fact that while ATM and physical branches faced a negative growth in transactions by 5% and 8% respectively, transactions through Digital Lending channels were growing at a huge 21% in 2017-18. In 2017, India held the largest share of Asia’s alternative lending deal count at 41% as compared to just 7% in 2014, denoting a progressive growth in online lending of funds. To ensure that the digital lending model remains sustainable in future, it would be essential for FinTech investors and incumbent financial institutions to develop sustainable, secure and scalable technology platforms.

References: BCG Digital Lending Report; PWC Report-A wider circle

LenDenClub is India’s largest alternate investment platform which started operations in India in 2015. We have been helping investors diversify their investments beyond traditional investment instruments ever since.



The Reserve Bank of India does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by Innofin Solutions Private Limited, and does not provide any assurance for repayment of the loans lent through its platform.

LenDenClub is an Intermediary under the provisions of the Information Technology Act, 2000 and virtually connects lenders and borrowers through its electronic platform via the website and/or mobile app.

The lending transaction is purely between lenders and borrowers at their own discretion, and LenDenClub does not assure loan fulfilment and/or investment returns. Also, the information provided on the platform is verified or checked on the best efforts basis without guaranteeing any accuracy of the data/information verification. Any investment decision taken by a lender on the basis of this information is at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower, fully or partially. The risk is entirely on the lender. LenDenClub will not be responsible for the full or partial loss of the principal and/or interest of lenders’ investment amounts.


*P2P investment is subject to risks. And investment decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.

** Average value mentioned is the weighted average of returns received by investors

© 2023 LenDenClub by Innofin Solutions Private Limited | CIN: U74999MH2015PTC266499


Watch our latest commercial with Hardik Pandya.