Banks and NBFCs have struck gold in digital lending, which is driving huge volumes through small loans.
Loans of below Rs 25,000 have grown 23 times since 2017, according to a joint report by Transunion CIBIL and Google.
The report identifies the significance of small ticket less than or equal to Rs 25,000 loans, characterized by searches for “phone on loan”, “laptop on EMI“, and “mahila loan 30,000”.
The share of these loan disbursals amongst all personal loans has gone up from 10 per cent in 2017 to 60 per cent in 2020.
With disbursal speed and convenience being the hallmarks of these loans, the digital-first sellers have the largest share in this category with 97 per cent of all personal loans disbursed by them being under Rs 25,000.
According to TU Cibil in 2020, 38% of loans disbursed to the ‘prime’ credit tier was through fintech NBFCs (non-banking financial companies).
The data shows that those who avail small loans are not less creditworthy.
Additionally, these fintech NBFCs no longer have only ‘urban youth’ as their primary audience — 70% of disbursals are outside tier-1, with 78% of customers being millennials (between 25-45 years of age).
The shift is set to accelerate as reflected by online trends which show that searches outside cities are growing 2.5 times faster as compared to cities.
Searches for loans grew the most in tier-3 cities at 47%, followed by tier-2 (32%) and tier-4 (28%). Indian credit industry stood at $613 billion (Rs 44 lakh crore), which reflects an 18% compounded annual growth rate (CAGR) since 2017. While home loans at $290 billion (Rs 21 lakh crore) form the largest chunk, loan against property and business loans are growing the fastest.
Who is the new borrower?
In 2020, 49 per cent of first-time borrowers were less than 30 years old and 71 per cent were based in non-metro locations, while 24 per cent were women, according to a joint report by Transunion CIBIL and Google titled “Credit Distributed”.
Further, these profiles vary when analyzed at credit product level based on credit appetite, credit experience, credit discipline, and channel of consumption, and have made segmentation increasingly nuanced and complex.
Overall, growth in searches for car loans between the two halves of 2020 grew the fastest at 55 per cent with home loans following with 22 per cent growth.
Loyalty factor pays for fintech NBFCs
Small loan borrowers demonstrate higher loyalty with 42X growth in repeat customer base amongst lenders in CY 2020 versus CY 2017. Moreover, this growth is as high as 64X for digital-first lenders i.e FinTech NBFCs indicating higher stickiness driven by convenience, over the same time period.
Ticket sizes on loan products like personal loans, auto loans and consumer durable loans are geo-agnostic.
In line with the geographical expansion of new digital users in tier 2/3/4 locations and rural India, and a preference for the mother tongue, local language searches for credit showed an exponential increase. Searches in local languages and for translations of terms such as ‘Credit’, ‘Term loan’, and ‘Moratorium‘ have also witnessed an uptick.
Customers rate trust in the brand higher than other traditional parameters like low interest rates, which came second, before recommendations, disbursal time, and online process, all considered to drive value perception with customers.
Sixty-four per cent of credit buyers say that brand is a major factor in choosing their loan provider. Considerable time and effort goes into choosing the lender brand with 76 per cent of borrowers taking a minimum of two weeks between exploration and finally choosing the lender.
Almost a third (32 per cent) of borrowers consider over five providers before proceeding to apply.
Financial Express is now on Telegram. 
