Small ticket loans gaining ground

- Individuals prefer to spend money on low-value transactions

- Number of loan applications was 9.8 lakhs in 2020

- It's expected to rise two-fold in 2021

- Demand is increasing in semi-urban and rural areas

- Avg ticket size for short-term loans is Rs25,000

- It's less than Rs5,000 for BNPL products

- CASHe and LenDenClub see spurt in BNPL transactions

- Buying medicines, groceries, electronic products online accounts for the lion's share in BNPL space

Mumbai: Digital lending companies are bracing for huge spurt in small ticket loans this festive season. The reason for the increase in short-term loans is that individuals now choose to spend their money on low-value transactions.

Small ticket loans have risen between two and seven times this year owing to millennial demand alone. Personal loan ticket sizes have dropped by 40 per cent, from Rs 2.4 lakh in FY17 to Rs 1.5 lakh in FY21. The average ticket size for short-term loans is Rs 25,000, whereas it is less than Rs 5,000 for buy-now-pay-later (BNPL) products.

Companies such as CASHe and LenDenClub that offer Buy-now-Pay-Later, which allows consumers to pay later in installments at no additional cost for their purchases, are bracing for a huge spurt in small-ticket loans, including BNPL, this festive season. Within less than 18months, India's annual BNPL sector has expanded from a few million dollars to approximately $1.5 billion-$2 billion in total transaction value.

As per CRIF High Mark data, the number of personal loans originated per year has more than tripled between FY 2017 and FY 2021. CASHe is a leading digital lending company that caters to salaried millennials of the country. It has witnessed a surge in its Buy Now Pay Later offerings. It offers interest-free EMIs options for Buying medicines in emergencies or groceries online or shop anything from e-commerce platforms and pay later in easy interest-free three easy EMIs.

Yogi Sadana, CEO, CASHe, said: "Consumer demand for short-term loans on our platform have substantially increased in the past six months. Basis this, we have registered over 45 per cent YoY growth in loan demand with around 30 per cent demand generated from tier II & III cities. The demand mainly is from salaried professionals in the age group of 22-38 years."

Owing to festive demand, we have disbursed over 40,000 loans in September alone which by far has been our best month this fiscal, out of which BNPL constitutes around 40 per cent, he added

The popularity of BNPL is mainly aided by incoming festivities and also due to the pandemic as people are becoming more comfortable in purchasing online. Furthermore, BNPL offers the customers a very affordable and convenient payment method which essentially decreases the financial burden on borrowers by offering no-cost EMIs.

Similarly, in Peer-To-Peer lending platform – LenDenClub offers customized financing solutions for its partner/merchant's customers. With this solution, customers of its partners can opt for the Buy now and pay later option. Since March, LenDenClub has witnessed a 1.5x to 2x increase in demand for small-ticket loans. The Buy-Now-Pay-Later model is the most popular option for customers who seek smaller loans instantly to fulfill their cash needs.

With total loan applications of 9.8 lakhs in 2020, we expect a two-fold rise by 2021. The majority of traction is centered around semi-urban (Tier II, III cities) and rural areas.

Talking to Bizz Buzz, Bhavin Patel, Co-founder & CEO, LenDenClub, says: "With our Instamoney feature, loan applications tripled to 170,000 from March to September, and we expect a further increase to 250,000 by the end of this year. We are anticipating a rise of 25-30 per cent during this festive season."

There has been a 30 per cent jump in demand for festive loans and micro lenders are expecting this to go up in this quarter for categories like shopping, travel, education, and home renovation.

There is a jump in travel-related loans as well, which were quite high before Covid.

Rohit Garg, Co-Founder and CEO, Smartcoin, a micro-lending platform, said: "We are seeing an improved demand for credit since the second wave. Whereas the second wave was mostly on the back of Covid related medical expenses, now we are witnessing things returning to normalcy.

At Smartcoin, we are quite bullish on the festive loan demand. In the past 3 months, we have witnessed that disbursals & collections are gradually coming back to the pre-Covid level. In fact, we have even exceeded our pre-Covid figures in a few cases."

According to Garg, "Now, we are again seeing travel-related expenses witnessing a 3-5 per cent high. We have been catering to both the salaried as well as self-employed individuals and have seen loan inquiries for buying mobile phones and buying furniture. Another rising segment amongst micro-entrepreneurs is business renovation. So, we are witnessing a steady uptick in the number of queries there as well."

With an extended weekend of festivities, people are making the most of this opportunity to head home for celebration with family or taking a short vacation with family. There is jump by 48 per cent for places like Katra to visit Vaishnav Devi originating from place like Delhi, Rajasthan, UP and MP.

Akash Dahiya, Co-founder, SanKash, a travel fintech platform, says, "We have witnessed a sudden surge for booking travel on EMI to destinations like Kolkata, Himachal Pradesh, and Rajasthan by 36 per cent."

Further, with the opening up of international locations, we are seeing 25 per cent jump to destination like Maldives originating from IT hubs of Hyderabad, Bangalore and Pune. Similarly, we are also witnessing a surge to cities in Gujarat by almost 30 per cent, he added.