Planning to take a loan for yourself? The capital required to purchase the entire asset would be high. Purchasing an asset out of your savings is impractical. But you still want to go ahead? The easiest way to raise fund is to apply for a loan.
Taking loan could be the right option in most of the cases, as it helps you to meet your financial needs. However, if you’ve already spent time trying to avail a loan in your past, then you must be knowing about the entire processes and time taken for it. For every loan borrowed, it includes a series of processes – from applying for the loan to the final release of funds.
One must cross several crucial steps in the process of getting their loan approved. All put together, it is commonly referred to as Loan Origination – a process that involves the thorough verification of the borrower’s credentials. Also, this includes the analysis of risk involved during the retrieval of the loan amount (even before the loan gets approved by the lender).
Loan Origination is a critical step and a process through which the borrowers apply for loan, get their documents and credentials verified, undergo the application assessment by the lender, and finally get the loan amount sanctioned.
The origination process includes series of steps that involves
The disbursal of funds includes the amounts paid for goods and services that may currently incur tax, other expenses including cost, money, and overall time.
All other processes that are carried out after disbursing the funds until the complete recovery of the loan amount comes under Loan Servicing.
Loan originators are the ones who are responsible for managing and maintaining the loan origination process. Generally, loan originators may either work with a financial institution or independently. Independent loan originators can help you get the best deal on a loan, offering you the deal that suits you. Whereas, originators working in a financial institution mostly operate in the best interest of the bank. They prioritise the interest rates the bank offers.
The Loan Origination Process includes the following steps:
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With the evolution of technology, digital mediums, and cloud computing technology, even the loan origination process has evolved. Now that the loan origination process has been moved from manual operations to cloud-based technology. This digitalization of the loan origination process is commonly referred to as Digitalized Origination.
Digital Origination – Simplified
The Digital Loan Origination process includes all the process that is present in manual loan origination process – namely filling of loan application, collection and validation of supporting data, and other processes. This digital process includes the entire gamut of the loan origination process and keeps the paperwork minimal.
Below are the latest trends in Loan Origination Process:
Paperless Loan Origination – Thanks to the evolution of the Internet and advancements in the latest technologies. Now, several loan originators have started moving towards a paperless loan origination process. This is because traditional loan origination involves a lot of paper-based work and documents handling. The use of SaaS has helped organizations to move towards Paperless Loan Origination Systems.
Managing Documents – The loan origination process involves a lot of document handling. The advent of Cloud-based solutions and several other new technologies have made the document handling process simpler. The borrower’s details and other relevant documents are kept safely and processed in a secure manner. Cloud servers are used to store the KYC details and other relevant documents.
Usage of cloud-based solutions eliminates the need for manual maintenance of documents. Also, the verification process is made simple and done with the help of image processing and machine learning process. You can also authorize the documents digitally by choosing the remote “eSigning” option.
SMS Facility – Another key advantage of using a digital system is that all your KYC accounts are linked to the mobile number. This means you will be receiving all the transaction details, financial updates, career opportunities, and other banking information via SMS.
The lender can check the credit-worthiness of the borrower/customer by analyzing their SMS history.
Social Media Activity – The digital world has transformed the lives of people, and thereby everyone has started using the Internet and smartphones. This is another advantage for the lenders as they can analyze the activities of the borrowers.
People share and update their day-to-day activities on their social media platforms. This helps lenders to analyze the spending patterns of the borrowers/customers.
Psychometric Test – This test is carried out to generate the socio-psychological profile of the customers/borrowers. These psychometric tests help lenders to assess and analyze the borrowers and the risk posed by them (if they can pay back the loan or not).
This test result is coupled along with the CIBIL score of the borrower and is used to assess the risk associated.
The domestic NBFC organizations and MFIs that serve customers are facing quite a set of challenges. Addressing these issues in manual loan origination process is quite challenging.
Traditional loan origination process involves a lot of paperwork and involves manual screening process. This process is cumbersome for both the lenders as well as the borrowers. This poses a major challenge in loan origination process making it time consuming.
The manual loan origination process usually takes 35-40 days for the processing (from application filing to sanctioning or rejecting the loan). Also, the credential verification process is quite hectic and takes a long time.
Also, there are chances for fool-proofing and malpractice. It goes unsaid that manual processing is generally prone to errors. Hence arises the need for an alternative method that reduces the errors and time-taken for loan-origination.
Here is a list of problems that are mainly faced by NBFC and MFI in Loan Origination Process:
The use of digital technologies and software solutions eliminate the challenges faced in the loan origination process. One such software is CloudBankin – a Loan Management and Origination System Software that makes the process simpler.
The key challenges involved in manual processing, including documents, handling & maintenance, time constraint, and errors can be eliminated with the help of the CloudBankin software.
It is a robust and scalable Loan Management and Origination Software that is designed with an aim to simplify the entire loan origination process. The CloudBankin software features a suite of options that delivers operational efficiencies, eliminates the occurrence of an error, makes reporting and analytics integration process simpler, and much more.
Below are the ways how CloudBankin Software helps organizations in Loan Origination Process:
Management of Different Loan Types – The CloudBankin software helps organizations to work with all kinds of loan products. This software features all kinds of loan products, thereby making the process simpler.
Handling of User Details and Documents – With the CloudBankin software, you can easily update your customer details and store all other documents. This eliminates the need for paperwork and consumes less time.
e-KYC Process – The CloudBankin software features an inbuilt e-KYC solution with it. This feature simplifies the entire onboarding process and the completion of user verification is done in a few minutes.
Also, it streamlines the e-KYC processing and reduces the overall time taken for completing the process.
Credit Score Details – The loan origination process is based on the credit score of the customers. The CloudBankin software features a built-in credit-scoring system that assesses the credit score of the borrower. Also, it streamlines and monitors the credit performance for an applicant.
Management of Lending Rates – Loan Management and Origination System involves the management of lending rates for each kind of loans followed by origination based on the applicant’s credibility. The CloudBankin software automatically applies the period-specific base lending rates to each loan applicant.
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The CloudBankin software is built exclusively for the NBFC and MFI industries and has a core focus on customer-centric services. The following are the key advantages that highlight the use of CloudBankin software:
With the advent of latest technologies, the processing time and the processing fee are lowered considerably. To sum up, the use of software products such as CloudBankin reduces the overall time required for processing.
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After smartphone penetration, people are not watching their SMS at all. They use SMS only for OTP related transactions. That’s it.
But What can a Lender see in your SMS after you consent to them?
Lender can see income, expenses, and any other Fixed Obligation like (EMIs/Credit Card).
1) Income – Parameters like Average Salary Credited, Stable Monthly inflows like Rent
2) Expenses – Average monthly debit card transactions, UPI Transactions, Monthly ATM Withdrawal Amount etc
3) Fixed Obligations – Loan payments have been made for the past few months, Credit card transactions.
It also tells the Lender the adverse incidents like
1) Missed Loan payments
2) Cheque bounces
3) Missed Bill Payments like EB, LPG gas bills.
4) POS transaction declines due to insufficient funds.
A massive chunk of data is available in our SMS (more than 700 data points), which helps Lender to make a credit decision.
An interesting insight on vehicle loans for lenders.
A trend we are seeing today – the first-hand vehicle ownership is decreasing with time. Why? People are upgrading their vehicles in every few years because of technological advances. And, this can be seen more with the millennial generation.
So, what should a lender do in terms of financing?
– Estimating the residual value of the vehicle at the start of the financing period.
– Charging a borrower only for the residual value (which is the difference between the value after a few years and the current value)
Example: A bike currently is INR 1 lakh. You want to buy the vehicle for 2 years. A lender will estimate the residual value of that bike today and what it would be after 2 years. If the estimated residual value = INR 45,000, the lender will charge you only that (say, INR 55,000 with interest for this instance) during your tenure.
At the end of 2-year period, you have 3 choices:
1. Return the bike and upgrade to a new one without going through the struggle of selling it.
2. Pay the lump sum remaining amount to own the vehicle outright.
3. Extend the financing and own it by keep paying the EMIs for the remaining amount of the vehicle for the next 12 or 18 months.
Benefits for the borrowers?
– Flexibility to use a vehicle and upgrade to a new one.
– Affordability to not pay for the complete value of the vehicle with the intention to use for a lesser amount of time.
– Convenience in owning the vehicle.
Say goodbye to the old lending option and embrace the new way of financing for vehicle by lenders!
How many of us know this?
1) Tiktok does Lending ( is it an entertainment company or social media company or a fintech company?
2) Youtube China does Lending
3) Top 100 internet companies in China(no matter what business they are in) do Lending
The team which was heading Lending in Tiktok was the Advertisement team. If we do Ads, we do X no of revenue. But if we do lending, we’ll get X+30% more revenue. This is on the same Ad spot.
Ad team has transformed into a lending team, and in today’s world, it’s possible because the subject matter expertise can be put in as an API and given to you.
Embedded Lending as a service is becoming popular in India too, and I am happy to be part of this ecosystem.
The answer is No. Only the top 10 crore people have access to many credit products in India. Almost all Banks focus on this market.
Once you go beyond that, the credit access rate has dropped significantly due to multiple factors.
1) Customers who are having low income(30-40K per month)
2) Not earning from an employer who belongs to Category A or B
3) Not from Tier 1 or 2 cities
NBFCs and Fintechs focus on the above segment, pushing another 10 crores of people.
But in India, 70 crores more people are formally or informally employed, which still needs to be tapped.