Why Lending must not be like a normal Product purchase and only digital..
Many say lending should be easier and seamless and just like a normal product purchase, however, I differ to this.
Well, I am also in favour of easy access to credit but it must be given with discipline and borrowers must follow it’s principles as religion because it has a potential to bar them completely from the list of many formal lenders.
There are cases in #Africa where people applied for loans just because they had easy access to apply and avail loan from their #mobile phones. They thought taking a loan is very tough and what we can get easily cannot be a loan, hence they defaulted. When they again went to take a formal loan in offline mode, their applications got declined because the mobile loan companies reported the defaulter to credit bureaus.
Another example is NBFC-MFI in India, its a point to consider why people who take loans on collateral have high default ratio but MFI loans which are just on group guarantee, collateral-free loans have lesser NPA, approximately 1%. Though there are different other reasons to it what comes out as result is worth emulating.
Hence only making loan application and disbursement easier and digital will not guarantee a better recovery and hence low NPA, but #Values, #ResponsibleLending, #NeedAssessment and regular interaction can ensure that. The underwriting of loan isn’t sufficient, regular monitoring will help. #NBFC, #P2PLending, #SFBs, #MFI
If easy loan default piles up, it becomes really tough to recover and poses problem for both the lender and borrowers.
Digital has its benefit in reducing cost and TAT, but digital is just a tool, “#Who & #How” uses it and designs the product considering both soft and hard factors makes all the difference. Hence I always say there has to be #SocialFabrics in lending than only using digital and #Algorithms.
What are your thoughts on this?