The concept of BNPL, which we commonly associate with modern financial arrangements, has surprisingly deep historical roots. Dr. Sathyan David, former Chief General Manager of the Reserve Bank of India (RBI), drew parallels between ancient lending practices and today’s BNPL arrangements during the ETBFSI NBFC Connect’24 Summit in Chennai. Let’s explore this intriguing connection.
Ancient Lending Practices
- Guptas and Mauryas:
- Dr. David highlighted that BNPL-type practices have existed since the period of the Guptas and Mauryas.
- During those ancient times, lending to small borrowers at high interest rates was already a common practice.
- The Guptas and Mauryas engaged in such lending activities, demonstrating that financial transactions involving deferred payments were not new even then.
- High-Interest Rates:
- Small borrowers faced high interest rates, similar to how BNPL arrangements today often involve additional fees or interest.
- The need for immediate funds drove borrowers to accept these terms, despite the financial burden.
Modern BNPL and Digitization
- Shift During COVID-19:
- The COVID-19 pandemic had a transformative effect on lending practices.
- As physical activity came to a standstill, digitization accelerated.
- Common Direct Selling Agents (DSAs) transformed into Loan Service Providers (LSPs), and online credit underwriting gained prominence.
- Bank-NBFC Collaboration:
- Banks collaborated extensively with Non-Banking Financial Companies (NBFCs).
- Co-lending arrangements became more common, allowing borrowers to access credit from both entities.
- Consumer Finance vs. Corporate Finance:
- Consumer finance has been gradually picking up, exceeding 30%.
- In contrast, corporate finance has decreased significantly.
- Regulatory oversight by the RBI plays a crucial role in maintaining financial stability.
The historical continuity of BNPL practices from ancient times to the present day underscores the resilience and adaptability of financial systems. As we navigate the complexities of modern finance, it’s essential to recognize that some concepts have been with us for centuries.
Remember, whether in ancient India or the digital age, responsible financial management remains critical. As BNPL continues to evolve, let’s learn from history while embracing innovation.
Read More on: ETBFSI
Also Read: Transparency in Digital Lending: RBI’s New Draft Guidelines for Loan Aggregators