Prime Minister Narendra Modi raised the clarion call for an AatmaNirbhar Bharat (self-reliant India) in 2020. For India to achieve this dream, Indian businesses will play a vital role. But they can only do this if they can access timely, low-cost funds to expand their operations and grow their operational footprint. One option to access these funds is a loan against property.
Loan Against Property (LAP) is a good option for businesses looking to fill their unmet credit needs. It enables borrowers to mortgage their properties as collateral against the loan.
LAPs are usually offered at lower interest rates compared to personal or business loans and come with lower EMIs, thus reducing the borrower’s repayment burden. Further, tenures are typically long and sanctioned amounts can be fairly high.
Indian borrowers understand these benefits, which is why the LAP sector has been growing in recent years.
Furthermore, this growth is expected to accelerate by 2023.
Nonetheless, the LAP landscape in India is also beset by several challenges, which can derail its growth and, worse, deprive almost 57 lakh Indian businesses of much-needed credit. 4 Crucial Pain Points Hindering the Growth of India’s LAP Sector
The LAP market in India is expected to top $857.87 billion (approx ₹70,000 billion rupees) by FY’26. In just the first half of 2021, demand for LAPs soared by 20%. It’s likely to keep soaring over the coming few years. Clearly, there is a robust appetite for LAPs.
Nonetheless, there are some pain points in the sector that, if left unresolved, could hinder this growth in future.
What Hurdles Is the Indian Loan Against Property Market facing?
Manual methods are slow and tedious which affects time taken to disburse the LAP.
This is unsurprising because these processes depend on manual interventions and human input – from building customer profiles and assessing the borrower’s creditworthiness to verifying documentation and evaluating the collateralised property.
All these manual checks and balances slow down the turnaround time (TAT), preventing borrowers from satisfying their need for quick funds. A long processing timeframe also prevents lenders from closing more deals, adversely affecting their top and bottom line.
1. Legacy Systems Slow Down Decision-Making and Disbursals
Many lenders use legacy systems to enable and support the end-to-end LAP origination and disbursal lifecycle. These systems are also fragmented, create unnecessary data siloes, and prevent the various parts of the LAP process from “talking” to each other.
Such fragmentation and lack of integration delay the process. It also reduces transparency and makes it harder for various personnel to share relevant information, ultimately slowing down decision-making and loan disbursals.
2. Below-Par Accessibility and Reach of LAPs
Existing LAP models do more than slow down origination and disbursal processes. They also limit lenders’ ability to reach more borrowers and expand their customer base.
Further, complicated application processes and lack of proper information prevent borrowers from accessing the LAP lenders and offerings that can best meet their needs. All these issues end up limiting the accessibility and reach of LAPs to those who need them the most.
3. Over-Dependence on Direct Selling Agents (DSAs)
Many Indian borrowers go through DSAs to apply for LAPs. DSAs act as a bridge between lenders with borrowers, helping lenders with due diligence and verifications and borrowers with documentation, KYC procedures, etc.
On the flip side, DSAs also reduce banks’ control over the LAP process and increase their operational risk. The theft of data by DSAs, which often happens during KYC procedures and document verification, is another ongoing concern for lenders.
All these issues create challenges preventing lenders from satisfying the demand for LAPs and preventing borrowers from meeting their credit requirements.
We explore these next.
What Challenges Are Borrowers Facing?
These are 4 major challenges that borrowers are facing.
1. Insufficient Credit History
Borrowers with inadequate credit history also struggle to access LAPs. Since they have no proven track record with other creditors, lenders see them as credit-unworthy and are more likely to reject their loan applications.
2. Lack of Financial Knowledge
Many potential borrowers lack awareness about the LAP system in India, particularly how the model works or how LAP features, interest rates, and tenures differ by lenders.
They also struggle with documentation, which lengthens the disbursal process and affects their borrowing experiences.
3. Issues Related to Property
Another challenge at borrower’s end is lack of information w.r.t what kind of collateral is accepted by lenders. Any property which is disputed, legal title is not clear, or property is not registered, an agricultural property is generally not accepted by the lender.
4. Delayed Access to Capital
Borrowers need to access credit and quickly get a LAP at a reasonable interest rate. They also want more options to compare various lenders, interest rates, and tenures and then decide what works best for their needs. Unfortunately, reality doesn’t quite match expectations.
What Challenges Are Lenders Facing?
These are 2 major challenges that lenders are facing.
1. Limited Yield, Scalability, and Turnover
LAP lenders face many challenges in India. They want to increase their reach and grow their customer base while reducing operational expenses and credit costs. These aspects affect their ability to increase yields, scale their LAP models, and turn over decent profits.
2. Disbursements are Delayed by Manual Workflows.
Existing LAP models with manual/offline workflows and paper-based processes are inadequate to meet these objectives.
If anything, they make it harder for lenders to connect with borrowers and delay deal closures. All these issues also hinder their cost-effectiveness, scalability, and profitability.
Digitizing Loans against property can eliminate all these challenges, and Yubi Loans is leading this charge.
Yubi Loans: #MakingIndiaGreat by Transforming India’s Lending Landscape
The many challenges in India’s lending ecosystem, particularly the LAP sector, prevent many Indian businesses from accessing the funds they need to progress and grow.
They need a solution that eliminates these challenges and empowers them to make the dream of AatmaNirbhar Bharat possible.
Enter Yubi Loans.
Yubi Loans is a tech-powered platform that effortlessly addresses India’s lending landscape challenges.
1. A Marketplace
With advanced AI/ML capabilities, Yubi Loans provides a digital marketplace where hundreds of lenders and borrowers can fulfil their credit requirements.
These technologies help bring both parties on the platform together, while advanced automation simplifies lending journeys, accelerates deal closures, and drastically reduces operational costs.
Moreover, AI-accelerated modules gauge borrowers’ creditworthiness and provide lenders with accurate insights to help improve their decision-making. Investors can share in-principle approvals based on their preferences and requirements, creating a transparent environment.
2. Leveraging Automation
Through Yubi Loans, business borrowers can quickly access the funds they need at a low cost.
Thanks to automated workflows, the lending process is much more efficient and delivers a seamless digital experience to every customer from start to end.
Borrowers also get the freedom to choose from Yubi’s network of 750+ lenders, favourable rates and multiple options across lender types and loan structures.
3. Building Credibility
Yubi Loans enables lenders to connect with 3000+ active borrowers and add new high-quality customers to grow their loan books. With its advanced algorithms and analytics features, they can close deals 5X faster, scale their business, and strengthen their portfolios.
Yubi Loans streamlines banks’ lending ecosystems with simple one-time integration with their LOS, LMS, and CBS. It also brings point-to-point onboarding, digital underwriting, and seamless data flows between originators and lenders.
Hassle-free loan disbursements, complete transparency, and superior customer experiences are all possible with Yubi Loans.
Yubi Loans leverages powerful technology and digital innovation to simplify corporate and SME lending and bring AatmaNirbhar Bharat from the realm of imagination to the realm of reality.
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