Digital lending systems need self-regulation

“If you are doing business genuinely, you don’t want unethical creatures to creep in,” quipped Raman Aggarwal, in his Keynote Address at the beginning of the 16^th NBFC and Fintech Conclave and Awards in Delhi recently, organised by B2B Market Media and The Founder Media.

It often happens that the sector suffers a lot because of unethical elements. “Because of just three-four players, the entire sector gets tarnished as bad,” he lamented.

To get rid of such a scenario, Aggarwal recommended all the lending players, who are currently not registered, but are working with some regulated entities as Lender Service Providers (LSPs), to get together and create a database and make it available to policymakers. This will prevent them from the wrath of regulators,” he warned.

Speaking on the similar lines, Jiji Mammen, Executive Director and CEO, Sa-Dhan, also delivered the Keynote Address at the summit. He said that there has been growth across different landscapes of financial institutions. However, the growth in NBFCs has been a major boost for financial inclusion in India.

Regarding fintechs, he said, “The beauty of fintech is that it can reach anywhere and anytime. The kind of strength fintechs have, it is helping us the right way, especially with the help of collaborations these have with formal banking systems.

He also highlighted the role of credit bureau and said, “Even though India has a credit bureau system, it is unable to capture all the data. It is only able to capture the data of the fully-regulated entities like bank and NBFCs. However, some other kinds of lending are also taking place in the lending space and a lot of overlapping is taking place there. This needs to be addressed.”  

While saying that fintechs are growing largely today and hold a bright future, he stressed on the need for checks and balances.

“One of the solutions that we need is to have a self-regulatory mechanism in the fintech world that can keep all of us safe. There are a lot of people who need money. However, just providing credit itself is not sufficient,” he stated.

The summit also saw four panel discussions: Digital Lending – Host of Cutting-edge Technologies; From NBFCs to Fintech – A Bridge Too Far; Banking on Technology: Transforming NBFCs with Cloud; and Safeguarding the Financial Systems from Cyber Threats.

The panellists opined that in housing finance, there is a room to create a co-lending ecosystem – be it for credit scoring, underwriting, etc. Apart from it, different banks and NBFCs have different policies and technology companies should try to help merge these for easy accessibility. Regarding AI, it was mentioned that experience for customer support, internal employee training for compliance purposes, democratisation of data analytics and new revenue generation in a co-pilot model are important.

The panellists also stated that conversion of MFIs and NBFCs into banks can only be done by technology, at a lesser cost. Further, the lending sector will keep on facing challenges, but organisations have to keep on making themselves competent with the help of technology.

Speaking of the usage of Cloud in financial institutions, the panellists were of the view that just being on Cloud doesn’t ensure that one’s application is secure. If organisations are not cautious about the design of their applications, the cost of Cloud will bring those down. It is necessary to make sure that an application is designed for Cloud.

Furthermore, since IT penetration in increasing every day, there is very little scope of reducing the cost; only ICT can help do it. Besides, people should not limit their strategies thinking that Cloud is the only way to grow. One must be watchful of being “Cloud only” or “Cloud first.”

In the context of cybersecurity, the panellists suggested that it is always better to understand the ecosystem one is a part of, and define a strategy towards becoming a resilient organisation. In addition to it, there is also a need for more financial and digital literacy for people borrowing loans.

The day also saw a Special Address from the Guest of Honour Golok Kumar Simli, Principal Adviser and CTO, Ministry of External Affairs, wherein he notified that India’s digital economy is expected to be $1 trillion by 2026-27. He also informed that flawless digital interaction, inclusive growth and empowerment, digital democratisation and technology-enabled development are some of the measures initiated under the $5 trillion overall Indian economy by 2030.

He also spoke about the various advantages of technology in the financial sector, while also cautioning that to leverage the advanced technology, rules of engagement (processes compliances and regulations) must not be forgotten.

Finally, he presented the NBFC and Fintech Conclave and Awards to the winners in various categories. The winners are as follows: