Digital Lending Surges by 49% to $17.53 Billion in FY24

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Digital Lending Sees a Surge: $17.53 Billion Disbursed in FY24, a 49% Increase

Team Finance Saathi

19/Jun/2024

Key Points:

Digital lending disbursements surged by 49% to $17.53 billion in FY24.
The number of loans disbursed increased by 35% to over 10 crore borrowings.
The average ticket size for loans rose from $133 in FY23 to $151 in FY24.

The digital lending sector has witnessed a significant surge in disbursements, according to the latest report by the Fintech Association for Consumer Empowerment (FACE). The industry has seen a remarkable 49% increase in disbursements, reaching a total of $17.53 billion (Rs.1.46 lakh crore) in the financial year 2023-24. This growth is accompanied by a 35% rise in the number of loans disbursed, totaling over 10 crore borrowings during the same period.

Key Growth Metrics

The data from FACE highlights a robust performance in the digital lending sector. In the March quarter alone, companies disbursed 2.69 crore loans worth $4.84 billion (Rs. 40,322 crore), with an average ticket size of $161 (Rs. 13,418). For the entire fiscal year, the average ticket size stood at $151 (Rs. 12,648), up from $133 (Rs. 11,094) in FY23. This indicates a trend towards larger loan amounts being disbursed, reflecting increased borrower confidence and lender capacity.

Regulatory Landscape

Despite the impressive growth, the digital lending sector faces scrutiny from the Reserve Bank, which has expressed concerns about certain practices adopted by digital lenders. In response, draft guidelines have been formulated to ensure better regulation and consumer protection. FACE's chief executive, Mr. Sugandh Saxena, emphasized that the sector is moving forward responsibly with a strong focus on customer-centricity, compliance, risk management, and sustainable business models.

Disbursement Distribution

The report also reveals that 70% of the total disbursements were made by 28 companies, which are either registered as non-banking finance companies (NBFCs) or have an in-house NBFC. These companies have experienced a higher growth rate compared to their counterparts, underscoring the significant role of NBFCs in the digital lending ecosystem.

Financial Health and Investment

During FY24, digital lending companies raised $230 million (Rs. 1,913 crore) in equity and $1.95 billion (Rs. 16,259 crore) in debt. Although the equity raised was lower compared to FY23, the sector continues to attract substantial investment, indicating investor confidence in the industry's growth potential. Additionally, the data shows that 83% of the companies reported being profitable in FY24, up from 76% in FY22.

First Loss Default Guarantee (FLDG)

The concept of First Loss Default Guarantee (FLDG) has gained traction within the sector. Nine companies that reported data for FLDG had 51 portfolios worth $1.09 billion (Rs. 9,118 crore), with 94% of the portfolio value covered by FLDG arrangements offering coverage between 4-5%. This risk mitigation strategy helps lenders manage default risks and enhances borrower confidence.

Conclusion

The digital lending sector's impressive growth in FY24 highlights its critical role in providing financial access to a broad spectrum of borrowers. With the Reserve Bank's draft guidelines aiming to address regulatory concerns and ensure consumer protection, the sector is poised for continued expansion. Companies are demonstrating a commitment to sustainable and responsible lending practices, which will likely foster further growth and stability in the digital lending market.

The data provided by FACE underscores the sector's vitality and resilience, making it a crucial component of the broader financial services industry. As the sector continues to evolve, it will be essential for stakeholders to navigate regulatory landscapes, maintain a customer-centric approach, and leverage innovative financial products to meet the diverse needs of borrowers.

Also Read : Fitch Upgrades India's Growth Forecast to 7.2% for FY25 Amid Consumer Spending Surge

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