Individual borrowers under the age of 40 now form the largest digital lending customer base, and make up 80 percent of the disbursed loans, according to a recent study by the Fintech Association for Consumer Empowerment (FACE), an industry association and self-regulatory body for fintech lenders set up as a non-profit company in September 2020, and credit information company Equifax.
Borrowers in the age group of 31-40 years account for the highest market share, followed by those in the 26-30 band (refer to graphic).
The share of very young borrowers, i.e., those who are under 25, has increased slightly, to 16 percent. This group also saw the fastest growth—over 50 percent—between financial years 2021-22 and financial year 2022-23, according to the second edition of the study, which was released last month.
Individual borrowers under the age of 40 now form the largest digital lending customer base, and make up 80 percent of the disbursed loans, according to a recent study by the Fintech Association for Consumer Empowerment (FACE), an industry association and self-regulatory body for fintech lenders set up as a non-profit company in September 2020, and credit information company Equifax.
Borrowers in the age group of 31-40 years account for the highest market share, followed by those in the 26-30 band (refer to graphic).
The share of very young borrowers, i.e., those who are under 25, has increased slightly, to 16 percent. This group also saw the fastest growth—over 50 percent—between financial years 2021-22 and financial year 2022-23, according to the second edition of the study, which was released last month.
Digital lending volumes and value grew by 49 percent and 21 percent, respectively, between financial year 2021-22 and financial year 2022-23, the study observed. “Digital lending guidelines brought many changes last year, and the report indicates that the industry is adapting remarkably well to the regulatory framework to accelerate customers’ access to formal credit,” says Sugandh Saxena, CEO of FACE.
New-to-credit borrowers contributing to growth
Fintech lenders disbursed over Rs 7.1 crore loans worth Rs 92,267 crore in financial year 2022-23 (refer to graphic).
The key factor for the growth in disbursement of loans through digital lenders is the ease of applying for a loan digitally using smartphones and outreach to new-to-credit segments.
“Now, digital lenders are willing to offer personal loans to people who are either new to credit (NTC) or have a relatively stressed credit history. We can underwrite them and disburse loans with our internal assessment system,” says Anil Pinapala, Founder & CEO, Flexpay by Vivifi, an RBI-certified non-banking finance company. He adds that likewise, digital lenders are offering loans to newer segments.
Borrowers grabbing shorter tenure loans for various purposes
The share of small-duration loans, i.e., less than six months, has increased, reaching 88 percent of the disbursement volume closed in the financial year 2022-23 (refer to graphic).
People who do not have enough cash flows and savings rely on loans to cope with uncertainty. In financial year 2022-23, 68 percent of personal loans were disbursed in the less than Rs 5,000 category.
These short-tenure loans are also popular among borrowers buying consumer electronics from e-commerce websites and departmental stores offering an option to convert your purchases to payment via EMIs. In consumer loans, 40 percent of the loans were disbursed in the Rs 10,000 to Rs 50,000 ticket size during financial year 2022-23.
“The borrowers are also trying to meet their monthly expenses at the end of the month through a short-term loan,” says Pinapala. He adds that some borrowers are trying to pay for medical expenses with the help of a loan. So, these are mostly consumption driven loans.
“Loans from a fintech platform for travel or a family vacation have emerged as a new segment for loan borrowers,” says Akshay Mehrotra, Co-Founder and CEO, Fibe, a digital lending platform. There are instances of people applying for small tenure loans for travel just before long weekends and vacations, he added.
Penetrating tier-3 cities
The share of tier-3 in digital lending is consistently increasing, accounting for 40 percent of the disbursed amount in financial year 2022-23. The share of tier 1 cities in digital lending diminished to one-fourth in financial year 2022-23 from more than a third in financial year 2020-21 (refer to graphic).
Borrowers need to tread with caution
The RBI has put in place several protection measures for borrowers through various guidelines. “Borrowers have to be careful; they need to access loans from regulated entities after proper due diligence,” says Rohan Lakhaiyar, Partner, Financial Services Risk Advisory, Grant Thornton Bharat.
Do not fall into a debt trap with multiple loans in a short period. “Take cognisance of your own income and make sure that debt repayment does not form a sizeable portion of your monthly income,” says Pinapala. Sound financial planning principles suggest that your total EMIs should not exceed 35-40 percent of your take-home pay.
By HIRAL THANAWALA
https://www.moneycontrol.com/news/business/personal-finance/people-under-40-account-for-80-percent-of-loans-from-digital-lenders-face-equifax-study-11373811.html
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