Not many people can authentically present futuristic concepts in as simple words as Nandan Nilekani, the non-executive Chairman of Infosys, can. In 2016, he was candid about a future when lending and banking operations would be all digital. In 2024, he coined the word Finternet — a future of financing systems. Recently, he opined on how India would host one million start-ups by 2035. Merge these prophecies and we can believe that road could see India’s banking system leapfrog beyond paperless lending — to a presence-less and consent-based trust network. That transition to enable those million start-ups and rural enterprises who need trustworthy, agile, and tech-rich lending.
Lending in India, which has relied on paperwork, collaterals, and even human judgement, will have to make way for digital data, processes, and algorithms. Some lenders have already commenced relying on behavioural patterns instead of just documentation. The data could be mobile phone usage, electricity usage, and even UPI payments to find those little details — those trails that say more about the intent of a loan and also the ability to repay. That is wisdom which data from the in-depth analysis and interpretation of a good bank fails to offer.
India’s alternative lending market is growing at over 26 per cent annually, according to a business intelligence report. This industry is already undergoing a paradigmatic shift: from asset-backed lending to behavioural analytics. The shift represents a fundamental recalibration of risk assessment methodologies within India’s financial ecosystem.
There are two reasons for this shift. One, customer demand; two, FOMO (fear of missing out). Today, a majority of the nearly 63 million MSMEs in India lack formal credit access — barely 14 per cent are able to access credit formally. It is not because such enterprises are risky, but because they have been mostly invisible to legacy banking and financial systems.
The customer demand also stems from the premise that today, customers demand service delivery in seconds. Hence, financial institutions cannot be predicated upon extensive documentation and rigorous collateral requirements. Such processes are, hence, experiencing an unprecedented yet silent obsolescence. Banks are relying on alternative data sources.
Secondly, most organisations and enterprises have learnt that this is a simple game — perform or perish. Hence, not adopting new standards is a risk to survival. Those that can demonstrate superior predictive capabilities not only survive but grow. Hence, the digital transformation journey has emerged with new iterations — one which converges artificial intelligence, machine learning algorithms, and comprehensive digital footprint analysis.
Machine learning is doing what risk officers used to do with gut instinct, but at scale. Today, algorithms can read hundreds of behavioural variables to predict if a borrower will repay a simple `15,000 loan. The AI can help understand this predicament in seconds. And this is an iterative power. As of 2023, digital lending in India reached over $350 billion, up from just $9 billion in 2012.
Much of this capability is powered by AI-backed underwriting and real-time APIs that fetch GST data, e-KYC, bank statements, and alternative data in seconds. These systems make lending smarter. The new risk engine today is one that is gargantuan and surrounds many technology layers. It could be blockchains and smart contracts that are currently used to reduce fraud… it could also be automated messaging to enforce timely repayments… and it is also the capability of lenders to leverage satellite-based crop data to assess risk for agri-based MSMEs.
Documentation will always have a role in lending. But the future lies in trust built from analysing behaviour and leveraging alternate data for true potential. The resulting system, converging the time-tested processes of banking with alternate data, will result in trust-based lending and technological innovation. This represents a transformation for India’s financial services landscape — a landscape that facilitates responsible innovation.
Technological sophistication unlocks unprecedented opportunities for financial inclusion across previously underserved populations. It also enables organisations to create newer products such as risk-adjusted pricing that reflects actual borrower characteristics rather than demographic generalisations or asset ownership patterns. This paradigmatic evolution fundamentally democratises access to formal credit while maintaining prudential risk management standards essential for sustainable lending practices. To India’s lending ecosystem, the message is clear: those who learn to listen to data beyond the balance sheet will lend better, deeper, and fairer.
The writer is chartered accountant, author and public policy analyst