Small Ticket Loans Under Rs 1 Lakh Form 50% Of Personal Loan Segment: Report

Retail consumers can get a loan sanctioned in less time than it takes to make chai (tea). That’s how various fintech platforms aim to provide instant gratification to consumers who are seeking easy access to credit in the form of loans. One major reason behind this is that small ticket loans with values of less than Rs 1 lakh seem to be the most sought after by borrowers. 

A report titled How India Lends In Financial Year 2021 By CRIF High Mark reveals that small ticket loans with values of less than Rs 1 lakh have contributed close to 50 per cent of the overall personal loan market. 

Rohit Garg, CEO and co-founder, SmartCoin, an instant personal loan app, said that small ticket loans have witnessed an increase in consumer preference for consumption needs, particularly after the Covid-19 pandemic began, and the trend has continued till now, due to various factors.

“Small-ticket loans have definitely witnessed an increase recently, and the transition has been hastened by the pandemic. That has led to a shift in consumer borrowing behaviour for personal consumption needs,” he says. 

According to a report corroborated by TransUnion CIBIL and Google, millennials (age group 26 – 41) formed the bulk of the retail loan borrower accounts. 

So, what led to this trend? Here are the details.

Some Recent Trends Seen By Fintechs/Non-Banking Financial Companies (NBFCs)

1. Higher Interest Among Consumers After Covid-19: Sucheta Mahapatra, managing director, Branch, a personal finance application, says that they saw the demand for loans rise by two times during the peak of the Covid-19 pandemic. But at the same time, loan debt servicing was down by two times, too (due to the moratorium announced by the banks, along with other factors). 

This presented a difficult situation during that time. However, she adds that now they are seeing their platform receive over 20,000 loan applications per day, and their loan platform also grew by five times, given that now the Covid-19 worries are almost over.

“Covid was a tough time for users, as well as lenders. One on hand, the overall demand for loans increased by twice from the period before. But the delinquencies increased by twice as well. This was coupled with the government moratorium period,” she added.

2. Instant Loans Gaining Among Millennials: Loan borrowers, who are aged below 35 years, formed about 40 per cent of the total segment of personal loan borrowers. Gaurav Chopra, founder and CEO, IndiaLends, says that small ticket loans grew because of both supply and demand, especially younger consumers, who are aspirational and seek instant results.

“On the demand side, we have observed a much higher uptake from the younger, early-to-credit customers. These customers are savvy, and seek small-ticket loans for aspirational spending, not just for unforeseen expenses,” he added.

Chopra said, that to capture the interest of these younger and other audiences, lenders adapted and upgraded their technological stacks, and enabled shorter and more secure loan applications process, so that the loan process application gets done by the end consumer in minimal time, and in a convenient manner.

“The majority of people have preferred small-ticket loans, as they offered a quick online process, instant disbursal, better management of loans, and reduced ticket values,” added Garg.

3. Evolving Consumer Spending Personality: P2P lending platform LenDenClub noted that there has been a sharp increase in consumer mind set to buy goods and services through the ‘buy now pay later’ (BNPL) mode. According to business loan data analysed by LenDenClub, this trend started after the second wave of the Covid-19 pandemic and led to changes and increase in consumer consumption and spending patterns. 

LenDenClub said that they witnessed “a 60 per cent straight rise in demand for small-ticket loans in April 2022 from April 2021.”

“The economy saw a contracted consumer pattern during the first wave of the pandemic. However, after the second wave (May 2021), as the country witnessed an unlocking from the pandemic, consumption patterns increased drastically, causing an upward spike in the need for credit. Additionally, there has been a significant shift in consumer mind set, especially in the post-Covid era, regarding the acceptance of digital financial products,” said Bhavin Patel, co-founder and CEO of LenDenClub.

4. Education Season Creating Demand: An analysis of the loan business data researched by CASHe revealed that education, followed by home renovation and wedding, were the top-3 reasons for borrowers seeking small ticket personal loans. Summers are usually the time when parents enrol their children in schools and colleges. One reason for this was that educational institutions were opening up in the offline mode, and colleges were also conducting classes and/or exams offline, and this led to a “burden on the parents to pay fees on time”.