Asset side: SFBs and NBFCs have mobile/tab-based applications to automate loan processing in the field. These apps
help sales staff to assess a customer’s credit worthiness in real time by accessing credit bureau information. Such credit
appraisals are key in order to reduce delinquencies. Cashless disbursements have also increased in the industry. Financial
institutions are also partnering with various fintech companies and payment gateway services to ensure collections.

Digitalisation and usage of technology have had the biggest impact on customer acquisition and on-boarding, followed
by credit assessment to some extent. Documentation and collection and monitoring are other processes experiencing
digitalisation, however, it is relatively lower. Technology is progressively being applied in these processes through digital
monitoring of portfolio using dashboards and analytics.

Liability side: Digitalisation helps SFBs lower their operational cost by eliminating repetitive and time-consuming
processes in account opening through increased front-end support. Use of mobile/tab-based paperless on-boarding has
significantly reduced the turnaround time to a maximum of one hour from one-two days traditionally.

For instance,

During the Covid-19 lockdown, Suryoday SFB launched a working capital product with a small overdraft facility to help
microfinance customers meet their urgent liquidity requirements. Equitas SFB recently launched Selfe Fixed Deposit and
Selfe Savings Account which allow users to open an FD by registering their Aadhaar and PAN and other basic details
from the comfort of their homes, thereby removing hassles of visiting the branch.

AU SFB on-boarded approximately 88% of its savings account customers through tab-based paperless process. Suryoday
SEB has tied up with Razorpay in order to bring about a shift in the way microfinance customers transact and enable them
to go digital to repay their loans.

Growth drivers

Sizeable market opportunity and credit at affordable rates

Due to the size of India’s population and the lack of formal banking services for a significant section of India’s population,
financial inclusion has been a key priority for the Government. The banking system and PSL have been the most popular
channels to bring the majority under formal credit institutions. Financial inclusion is a comprehensive exercise that
constitutes several products and services, such as provision of bank accounts, insurance facilities, payment and remittance
mechanisms, financial counselling and affordable credit. Further, various initiatives have been undertaken by the
Government to widen financial inclusion. These initiatives are planned by NABARD and executed through entities such
as regional rural banks, cooperatives and commercial banks. In addition, in 1970s, such lenders achieved significant reach
and an increasing number of individuals availed credit facilities. However, major delinquencies in repayment severely
impaired their financial health. Further, despite the rapid expansion in the scale of banks, several households continued
to face difficulties in accessing credit facilities. Within the large range of products and services under financial inclusion,
credit has particular significant and financial institutions have a major role to play in making credit available. The key
growth drivers for SFB include the size of the India market in terms of financially excluded households offers sustainable
credit to the poor at affordable rates. SFBs are also diversifying their product portfolio beyond microfinance into
unsecured loans, auto loans, housing loans and MSME loans.

Customized products aided by technology and availability of information

 

Increase in the use of technology has enabled lenders to provide customized products at much lower turnaround times.
Multiple data points are available to lenders that facilitates quick lending decisions by firms within a few minutes by
using data-driven automated models. These models help in the supply of credit to small business units and the unorganized
sector at low cost. Use of technology also enables such players in expanding their reach to under penetrated population
in remote areas at a lower operating cost.

Availability of funds at cheaper rates
CASA and other retail deposits provide SFBs cheap source of funding which would help them expand their product
portfolio and provide lower rates to compete with NBFCs. In addition, with further expansion of SFBs in the underserved

regions, the deposit base is expected to further widen and will help in expanding their asset side portfolio. Accordingly,
SEBs will hold an advantage over NBFCs.

Large Target audience

SFB’s aim to cater to the low-income segment. Further, unlike NBFCs which expand horizontally with special focus
product, SFBs have the chance to expand vertically and deep which will enable them to have a good range of medium

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