In this part-II of Digital Lending, we shall be discussing about the set up of Digital Lending Platform in India.
Choose Business Model
More than 2,000 Fin-Tech start-ups have been founded in India, with funding of more than 8 billion US Dollar. There are over 365 start-ups in the Digital Lending space in India, creating a paradigm shift from traditional credit services to digital ones.
The Digital Lending structure follows a faster process across the entire value chain from the very beginning of Consumer engagement until onboarding, credit assessment and collection of documents everything is completed within a couple of minutes, with minimum paperwork and disbursement. Therefore, it is crucial for the companies eying to foray into Digital Lending to evaluate the following aspects –
1. Evaluate Resources and Capital Requirements
Companies are required to determine their capital resources and then choose the suitable business association with Banks and NBFCs. For App-based lending the prevalent models are Venture-Based Model, Peer-to-Peer Lending Model or Direct Sales Agent Mode.
2. Product and Consumer Segment
Companies are required to determine what kind of Loan Product and which user segment they are going to deal with, such as Consumer loans for electronics or durables or; Personal loans for salaried employees or; Business loans for small traders or Auto loans etc.
3. Credit scoring
‘Companies may opt to build a strong credit engine based on the data or information available and would like to explore multiple associations with financial institutions and credit rating agencies. Further, the Digital Lending Platforms are also required to fulfil regulatory compliances and therefore, it is lender’s responsibility to check the credit risk of the borrower based on credit score only.
4. Right Fit Technological Platform
Companies have the option of either building their own Technological Platform from scratch or buy customized ready Platform, the most prevalent technological platform methods are to use Software as a Solution (SaaS) method or Platform as a Solution (PaaS) method.
In part-III, we shall be dealing with Choose Digital Lending Models.
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