A market in Kolkata, capital of India's West Bengal state Photo: Yang Kunyi/GT

Chinese companies are betting big on India's credit loan and lending market based in the country's rising digitally connected population. But while some of China's biggest technology companies are launching their financial services in India, challenges persist, especially in expanding services to remote areas and determining the creditworthiness of customers.

Rising digital financing

India is exponentially developing its fin-tech, most notably the digital lending business. The sector is expected to grow 15 times larger by 2023 to be worth more than $100 billion, according to a report by Omidyar Network and Boston Consulting Group.

Several companies from China have tapped into the market. 

The Chinese e-commerce giant Alibaba Group took 40 percent of Indian online payment company Paytm in 2015. China's smartphone maker Xiaomi, which tops the mobile phone market in India, is the latest to dive into the country's digital finance industry, having launched its digital loan service earlier this month. Mi Credit, an app developed by Xiaomi, had disbursed over 28 crores ($3.9 million) in its November trial run, according to a statement sent from Mi Credit's Indian office to the Global Times. 

"Currently, Mi Credit serves more than 10 states spanning across 1,500 pin codes, and aims to expand its availability to 100 percent of the pin codes (more than 19,000 pin codes) by the end of the fiscal year 2019," according to the statement. 

The app claims that it allows users to get up to 100,000 rupees ($1,408) within as little as 5 minutes, and users are required only to provide proof of address, a permanent account number card and bank details, according to the app's introduction on the Google Play app store.

Behind the fast growth of Chinese fin-tech companies is India's growing young population that is internet-connected, which enables online payment as well as data collection from the financial services providers, Zhang Yu, a senior analyst at Beijing-based consultancy iResearch, told the Global Times. 

The number of digital-payment acceptance locations has reached 1.5 million between 2016 and 2017, according to a report by consultancy KPMG. Paytm, which is one of the country's most popular online payment methods, has around 140 million monthly active users around August, accounting for around one 10th of India's population. 

"Digital footprint is very key in the digital financing area," Zhang said. "It means data will be available online and potentially ready for fast collection and analysis by financial institutions."

The market potential of digital financing is also enabled by the low penetration of credit cards, which is failing to meet the increasing demand of young people. According to a report by investment bank JPMorgan, only about two out of 100 Indians have a credit card in 2019. By contrast, 68.7 percent of all households in the US own a general purpose credit card, according to a report from Harvard Business Review.

"Like the young people in China who have just started working, Indian young people in big cities also have an increasing demand to borrow money easily and quickly," Zhang said. "This is why the market is growing."

Business models and challenges

Xiaomi is not new to providing its customers with financial services. The company first launched its financial service in China in 2015, offering a package of financial service including online payment, credit loans and insurance. 

"With the experience established in China, these companies are likely to follow a similar model of operation in India, which involves determining the customers' credit rating by going through online financial history, and working closely with local financial institutions, including local large banks and trust funds," said Zhang.

LendingAdda, a lending product under China's 360 Finance Inc, operates a similar model. Its partners range from Indian private banks such as the Mumbai-based RBL Bank, to non-banking financial companies (NBFC) such as Indiabulls and Tata Capital, Nishant Gupta, business head of the 360 Finance Group in India told the Global Times. 

"We determine the ratings by looking at the applicants' online history, from personal loan, payment history to the level of salary that they make," Gupta said. "By doing that, we are matching the customers with the best services and most suitable institutions." 

There are more than 100,000 daily active users of Lending Adda, and it has reached 5 million downloads. Although Gupta declined to tell of the specific loans that 360 Finance has disbursed, he indicates that since its launch in June, the company's service has generated "very good numbers."

However, as a country whose financing infrastructure is relatively incomplete due to its underdeveloped traditional financing sector, the challenges faced by digital financing in India do not go unrecognized, especially in the process of determining user credit of people with little digital identification.

Mi Credit, for example, promises easy loans in as little as 5 minutes, but many users report around 24 to 48 hours of data review, and some say the process can take up to seven days, according to the app's reviews in the Google Pay comments section.

"In India, it is unlikely that the financial services platforms can offer what they are promising, namely almost instant loans with very few digital documents required," Zhang said, "unless they want to risk potentially really high bad debt rates."

Zhang also noted that the collection and sharing of users' digital data can pose potential privacy breach risks, especially under India's relatively loose data regulations. 

However, Gupta said that for now all data stored for 360 Finance services are strictly within India, and "is not shared with the Chinese headquarters." 

"Currently the biggest challenge is still to reach people in the tier 3 or tier 4 cities that are without internet connection and to find out their credit worthiness," Gupta said, noting that the company is planning to collect more data from customers, including their biometric data, such as fingerprints and faces, to speed up the process of disbursing loans.
Newspaper headline: Logging on to lend