Technology is transforming access to finance in the rural belts of India by enabling residents to tap into financial services, which were once out of reach. Non-Banking Financial Companies (NBFCs) are leading the way for this revolution, employing digital solutions to shatter barriers that kept the population excluded from formal credit systems. In the past, many factors such as the lack of credit history and the vast distances between banking branches posed significant obstacles, forcing rural residents to rely on informal, high-interest sources of credit. However, NBFCs are rapidly leveraging innovations to effect change and offer quicker, more accessible and affordable credit solutions.
Utilising data analytics and other technologies, these institutions provide loans to those who may not have a traditional credit history, ensuring that financial access reaches even the most remote regions. Such a shift encourages financial inclusion, helping rural India uncover its true economic potential.A KPMG report in association with Confederation of Indian Industry states that NBFCs have emerged as the vital source of finance for a large segment of the population, including SMEs and economically unserved and underserved people. They are catering to the diverse needs of borrowers, considering their vast geographical scope, understanding of the various financial requirements and extremely fast turnaround time. The sector has grown significantly, with a number of players adopting heterogeneous business models and starting operations. NBFCs are further reaching out to Tier 2, Tier 3 and Tier 4 markets, distributing the loan across several customer touchpoints. In addition, they are building an omni-channel, offering a seamless experience of sales and service 24 hours a day, seven days a week.
Some NBFCs have even proven their appetite and talent to compete with larger institutions, armed with tools such as cloud, low-code/no-code, data lakes and Gen AI as well as application modernisation, super apps, data transparency and robust information security to provide enhanced customer and employee experience. Embracing data-led underwriting, they have been able to offer instant credits utilising new-age lending models that lead to faster disbursement of loans, particularly in rural areas. The technology is also boosting portfolio monitoring by accessing richer and recent data sets, which help in better early warning systems (EWS).
Eradicating the prerequisite for widespread paperwork and long distance travel, NBFCs have further introduced mobile applications and web-based platforms to enable individuals to apply for loans at the comfort of their homes. They are also employing alternative data sources such as mobile phone usage, transaction histories and social media activity, to mitigate the challenge of a lack of formal credit history. Additionally, alternative credit scoring methods are being adopted by NBFCs to measure the risk of lending to rural customers who may not have conventional credit scores.
A range of NBFCs are also allowing rural borrowers to obtain loans directly into their bank accounts or digital wallets. It aids in managing their finances efficiently and making cashless payments for agricultural inputs, goods, and services. Flexible loan products tailored to specific needs, such as agriculture loans, microloans, or seasonal financing, are also improving credit availability. Typically, rural borrowers experienced linguistic hurdles which obscured their loan application process. Deploying Artificial Intelligence (AI) and Natural Language Processing (NLP) in the form of chat bots, NBFCs are efficiently addressing this concern and improving customer engagement. Showcasing immense potential in the future, the advent of AI and large language models (LLMs) is expected to revolutionise NBFC operations, enhancing sourcing, servicing and collections. It will streamline these processes and improve the overall experience. Block chain technologies used by NBFCs, could also guarantee transparency and security in rural lending. Armed with it, borrowers and lenders will be equipped to track loan histories and repayments, decreasing instances of scams and improving accountability.
As technological developments are expected to improve in the future, many challenges also persist. Digital literacy is still a hurdle with a significant percentage of the population lacking access to smart phones and internet connectivity. The current regulatory environment further needs to focus on digital adoption, consumer protection, data privacy, and security. In line with this, greater governmental support is anticipated, promoting the growth of NBFCs and facilitating their smooth operations.
All things considered, rural lending is set to witness immense transition as India aims to become a digital-first country. With the power of technology, NBFCs will not just offer financial products but also redefine how rural communities access credit, savings and financial services. Following this affirmative course, ultimately, the coming goal for a financially empowered nation seems to be within reach.
