Fintechs parse end use of personal loans

Top fintech companies in the unsecured lending space are increasingly verifying the end use of funds when disbursing personal loans. These fintechs are focusing on offering unsecured loans for purposes such as medical expenses, major life events, or supporting small business owners, while avoiding consumer durable loans.

Notable players in this space include LendingKart, Axio, Fibe, KreditBee, TruBalance, Vivifi, and others. This move comes after a regulatory nudge that called for ensuring that unsecured loans be used for more specific, productive purposes to reduce the risk of defaults.

“We are focused on tracking the end use of funds for all our unsecured loan products using artificial intelligence tools,” said Souparno Bagchi, chief operating officer of Balancehero. “90% of our unsecured loans are focused towards people needing funds for medical aid, any big life event, and small business owners.”


To ensure the end use of funds is aligned with the intended purposes, fintech companies are increasingly using the services of account aggregators (AAs). AAs, approved by the RBI, have the capability to pull data about an individual from banks, insurance companies, and payment services. Fintech lenders work with these aggregators to obtain consent from borrowers and verify financial data, ensuring that funds are utilised as intended.

With an eye on reducing risks in unsecured lending, the RBI has encouraged lenders to track the end use of funds more rigorously. Many fintech lenders have responded by moving away from consumer durable loans, which are seen as driving consumption, and toward unsecured small business loans, which are viewed as productivity driven.

“RBI sees personal loans for buying consumer durables as driving consumption, while unsecured small business loans are being seen as productivity driven. So, as a firm, we have decided to focus on funding productive sectors,” one fintech lender stated.