India: Fintech Lending to Surpass Traditional Banking by 2030, CAFRAL Says

Fintech lending is expected to surpass traditional banking by 2030, according to a recent report by the Centre for Advanced Financial Research and Learning (CAFRAL).

The forecast by CAFRAL, an independent body established by the Reserve Bank of India (RBI) in 2011, underscores the profound impact of technology on the financial sector and reflects the changing preferences of both borrowers and lenders.

The report also highlighted the unique and diverse credit needs for small to mid-income segments, saying that Fintech lending can sustainably meet these requirements.

A key factor in this development is the belief among fintech players that their collaboration with banks will significantly contribute to this shift. The expectation is that consumer-friendly products and better-governed fintechs will soon emerge as major players.

These advancements are expected to include improved credit practices, lower costs for consumers, and more democratized credit access, especially in India where the banking regulator is strongly focused on consumer interests.

However, this growth is not without concerns. The CAFRAL report has shed light on issues like exorbitant interest rates, unethical recovery methods, and data privacy breaches in the rapidly expanding digital lending sphere.

A major problem is that borrowers often lack clear information about the total costs of borrowing, with many details not communicated upfront.

Additionally, the prevalence of fake or illegal lending apps poses a significant risk. Users often struggle to verify the legitimacy of these apps, and there have been numerous reports of third-party harassment and aggressive loan recovery tactics.

In response to these challenges, the CAFRAL report said it has become crucial for fintechs to invest in technologies and systems that enhance digital lending processes, such as underwriting, cybersecurity, and data privacy.

Despite the negative perception colored by some unscrupulous authorized players, many fintech lenders are diligently enhancing their technologies and practices to address these issues, the CAFRAL report said.

Regulated fintech lenders also adhere to digital lending guidelines and a code of conduct covering pricing and recovery practices.

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