Personal Finance

Millennials' credit needs: How digitisation is paving the way and what borrowers should bear in mind

Updated : December 16, 2019 05:44 PM IST

India has a total of about five crore credit cards in circulation which are held by about three crore individuals.

Over the last three years, India has witnessed a revolution when it comes to financing of consumer durables and personal loans.

Instant, simple, paperless and flexible – these are not merely adjectives, but are attributes sought by millennials when it comes to availing most services and loans are no exception.

Over the last three years, India has witnessed a revolution when it comes to financing of consumer durable and personal loans which have grown in excess of 40 percent CAGR. Offering 100 percent digital loans through websites, mobile applications, Point of Sale terminals and payment gateways, fintech companies have been at the forefront of driving this surge. Complementing traditional banking propositions, fintech companies are leveraging advanced technologies such as artificial intelligence, big data analytics, and machine learning so as to provide a seamless experience when it comes to availing instant credit.

India’s demographic profile is complementing the proposition offered by fintech companies

With over 400 million millennial population, high penetration of smartphones, access to cheapest mobile data in the world and affinity towards instant gratification, this young, digitally active population is demonstrating highest levels of fintech adoption across the globe when it comes to loans. Fintech companies are uniquely positioned to address this segment with their novel product offerings and one such fast-emerging product segment is short term and flexible, unsecured personal loans.

Small personal loans: Why a majority of Indian population is looking for such loan products

As per the Periodic Labour Force Survey FY 2017-2018, less than 30 percent of working population in India makes more than Rs 20,000 per month. The very fact that average monthly income for a large set of working Indians may not be adequate to meet their planned and unplanned financial expenses, small ticket and flexible digital loans may be best suited for such customer segments. It is also pertinent to note that since monthly income becomes an important parameter while approving loan amount especially for unsecured loans, ticket size of such short-term loans on an average is about Rs 10,000 or up to 40-50 percent of monthly income of the applicant.

Some of the primary reasons to avail such loans include buying appliances, short vacations, meeting financial emergencies, house/shop renovation, family event, etc.

Growth potential – foundations are in place

India has a total of about five crore credit cards in circulation which are held by about three crore unique individuals, therefore this segment has ‘on-tap’ access to credit. However, on the back of efficient digital supply chains enabling instant disbursal, fintech companies have been able to establish an effective alternative for the credit underserved population especially when it comes to instant financing of their daily needs. Therefore this segment is witnessing tremendous demand and is set for rapid growth in the foreseeable future thereby bringing a large set of Indians under the ambit of formal credit.

What should borrowers bear in mind

Like any loan, borrowers must be careful when availing such credit facilities and should be clear on loan amount and end use, repayment capacity, charges and terms of loan, etc. It is advisable for millennials to develop prudent personal finance habits so as to not default on such loans and therefore build a sound credit history thereby enabling them to avail larger ticket loans in future like car, home loans, business loans, etc.

Jitin Bhasin is Managing Director at RupeeRedee and FincFriends.

Millennials' credit needs: How digitisation is paving the way and what borrowers should bear in mind

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