Hi everyone,  

Welcome to the 175th edition of The Pattern, a weekly newsletter by FinBox decoding the undercurrents in finance, economy, and technology.   

Forget horoscopes or family lineage, your credit score can make or break a match!  

A fiscally pragmatic family decided to take a peek into the prospective groom’s credit score. What they found wasn’t a minor flaw, but a series of financial blunders spanning multiple and deep debts. The engagement? Called off, just like that.  

A noble pursuit 

This brings us to the seismic shift in the Indian financial landscape. Over the past decade, NBFCs and microfinance institutions have opened the doors of credit to millions. This level of financial inclusion has been nothing short of revolutionary, reaching corners of the country where traditional banks feared treading.  
 
However, while democratising credit is noble, at the end of the day, it’s truly a double-edged sword. 

One step forward, two steps back 

The question is, are lenders being responsible custodians of this this growth and financial inclusion? Or are they inadvertently laying traps for the very people they aim to uplift? 

Take for example, mobile phone financing, once a poster child for accessible credit, is seeing delinquency rates exceed expected thresholds. The consequence? Lenders tightening the reins, blocking ‘high-risk’ areas, and slowing down loan growth.  

Medical emergencies, job losses, and other unexpected threats can often blindside borrowers. And these financial shocks inadvertently force them in a corner, resulting in loan defaults. Lenders lose significant value by not intervening early enough, viewing defaults as foregone conclusion rather than a cry for help.  

The need for intervention 

Responsible lending goes far beyond merely disbursing loans. It demands recognising early signs of borrower distress and a proactive willingness to intervene, essentially giving customers the best possible chance to honour repayments.  

A recent study revealed that a staggering 90-95% of loan defaults in India are, in fact, preventable with timely, structured support. This assistance could be in the form of dynamic payment schedules, partial payment options, or other tailored rescue mechanisms designed to pull a borrower back from the brink before they drown in debt. 

It’s not just about intervening but knowing when to intervene. This highlights the indispensable role of leveraging behavioural monitoring tools to flag those early warning signs, such as missed payments or increased credit usage. Not only will it help lenders provide a lifeboat to borrowers at the risk of defaulting but also help minimise losses. 

So, as we celebrate the ever-increasing reach of financial institutions, let’s ask ourselves: Are we just building the bridges to credit, or are we also installing the much-needed guardrails to support borrowers in distress?  

For true financial inclusion, just granting access to credit is not enough. We must provide customers a safety net and necessary support when the waters get rough.  

Reading list 

1. NBFCs, NBFC-MFIs contribute 86 pc of microfinance client base 

2. Smartphone loan defaults surge amid push for premium upgrades 

3. Nine in ten borrowers clear EMIs within 90 days 

4. Microfinance loan delinquencies surged in 2024-25 

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on X here and follow FinBox on LinkedIn to get the latest updates.   

Cheers,   
Mayank