As younger borrowers drive digital loans, proportion of ‘borrowed for less than six months’ rises significantly

• Personal loans take the lead among digital lending products, representing 72% in disbursement value.
• Share of Tier 3 cities in digital lending continues to rise.
• The proportion of short-duration loans (less than 6 months) has risen significantly.

The digital lending landscape is primarily driven by younger customers, those aged below 40, who make up a significant 80% of the total loans disbursed. Interestingly, the age distribution remains relatively stable, with the 31- 40 age group leading, closely followed by 26-30, reveals the findings of a report co-authored by industry body Fintech Association for Consumer Empowerment (FACE). The report compiled by credit reporting agency Equifax, is based on the inputs of 76 financial technology companies who largely do digital loans in the retail space.

The report has found that there's a slight increase in the share of very young borrowers (less than or equal to 25 years), to 16%. This group also experienced remarkable growth, with disbursed amounts surging by over 50% from FY22 to FY23.

Proportion of short duration loans goes up

The proportion of short-duration loans (less than 6 months) has risen significantly, accounting for 88% of the total disbursement volume (for loans closed in FY 2022- FY 2023). Interestingly, a majority of customers opt for short-term digital loans, and many choose to pre-close their loans before the originally agreed tenure.

Also, the average ticket size of the fintech industry decreased by 19% in FY 2022- FY 2023 compared to FY 2021- FY2022, reaching ₹12,989.

Personal loans most sought after

Personal loans take the lead among digital lending products, representing 83% of the disbursement volume (approximately 6 crore loans) and 72% in disbursement value (around ₹66,432 crore).

Personal loans also experienced substantial growth, with a 46% increase in volume and a 35% rise in value from FY 2021- FY 2022 to FY 2022- FY 2023. Moreover, consumer loan disbursal exhibited the highest growth, surging by 63% from in the same period.

Share of Tier 3 cities in digital lending continues to rise

Maharashtra, Karnataka, Uttar Pradesh, Telangana and Tamil Nadu were the top five states accounting for 50% of the disbursement.Share of Tier 3 cities share in digital lending continues to rise, constituting 40% of the total disbursement amount in FY 2022- FY 2023.

Meanwhile, Tier 1 cities have seen their share decrease to one-fourth in FY 2022- FY 2023 from over a third in FY 2021- FY 2022. Tier 3 has experienced the most significant Y-o-Y growth, increasing by 32% in the same period. Notably, in FY 2022- FY 2023, Bangalore Urban led in Tier 1, and Thane in Tier 2.