TOUGH TASK: For non-banking finance companies, credit assessment has been a relatively cumbersome process over the years
For the longest time, geographical expansion for most businesses required- capital expenditure, creating management capabilities, investing in physical infrastructure, local knowledge & relationships etc. All of these changed for companies who knew how to leverage new technology and digital infrastructure like internet, high speed broadband, low cost data transfer services and affordable smartphones etc. Consumer behaviour and regulatory framework were the only areas that needed to realise the expanse and extent of thisrevolution. Though in the last few years, both seem to be evolvingmuch faster than earlier.
Modern fintech platforms are on forefront to take not only trigger but accelerate these changes, but for NBFCs penetrating into the tier II and tier III cities continues to be much like untangling a Gordianknot. Here are some of them:
Indispensable physical infrastructure: Given today’s fast-paced digitisation, it is now possible to cater to consumer credit without any physical touchpoint. MSME-centric business loans, however, are a different ballgame altogether. To begin with, there is a tangible unavailability of data vis-à-vis credit profiling. A lender anyhow needs to evaluate a business loan application across multiple factors including credit history of a business, its financial health, business association data, relationships with suppliers, compliances such as enrolment with GSTN, ZED rating, certifications, loan defaults from the circle, and other market insights that are pertinent to the loan application. This makes the deployment of a physical ecosystem indispensable across every target city, which slows down the pace of growth.
Microscopic and macroscopic factors: Though tier II and tier III cities might be clubbed as one, they often behave like unique sub-markets that are governed by entirely different dynamics. Such dynamics could include prominence of a particular industry within that region (and thereby, its effects on the broader ecosystem), unique customer behavior, and other factors such as logistics, local regulations, and so on.
For instance, two loan applications could seem to be somewhat similar, however, they could have completely opposite end-results just because of their individual locations. All of such wide-ranging factors need to be captured and inferences drawn about how they impact a particular loan applicant. It makes the credit assessment a relatively cumbersome process in tier II and tier III cities.
Language barrier: Modern NBFCs largely adopt a digital-first approach. This approach uses mainstream languages (though not strictly) to target their customers. However, numerous reports have indicated that new internet users generally go online using their regional languages.
A Google-KPMG study reveals that as much as 9 out of 10 new users between 2016 and 2021 are going to follow the same suit. As NBFCs are eyeing tier II and tier III cities, they cannot expect the credit penetration to increase without adopting a regional approach, which has caused hindrance.
The writer is founder and CEO of InCred
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