The appropriate and intelligent use of secondary sources of data for alternative lending can help bring the underserved into the formal economy and reduce the hardships they face. Previously, we have shared our insights into some forms of alternative lending, such as person-to-person lending (P2P) and small and medium scale enterprise (SME) lending. Lending to fund healthcare expenses is an upcoming area in the alternative lending space and could occupy a crucial place in the overall FinTech ecosystem.
India currently scores low on a few critical healthcare-related parameters and faces issues such as poor health of children1 and lifestyle-related diseases such as diabetes.2
Medical problems and emergencies are notorious for catching people unawares and striking when least expected. There is only so much precaution one can take, and most people are rarely prepared when hit by this burden.
Typically, the government of a country budgets for healthcare expenditure. A comparison of healthcare expenditure across nations reveals a substantial gap between India’s healthcare spend as a percentage of GDP and that of some of its less developed neighbours as well as its BRICS counterparts.
India has a long way to go
A way to address healthcare expenditure is insurance coverage. However, more than 7 out of every 10 individuals in the country are not insured.3
Even if they are insured, the cover frequently proves to be inadequate. Union Budget 2018 has sought to address this issue through the announcement of the National Health Protection Scheme (NHPS), which seeks to provide an insurance cover of 5 lakh INR to over 10 crore families. This is an ambitious plan and, at present, its implementation and funding have not been completely detailed.
Concerningly, around 5 crore people are driven below the poverty line in India every year on account of out-of-pocket medical expenditure (this is around half the total number of people who are impoverished by healthcare expenses worldwide).4 Indians are the sixth biggest out-of-pocket health spenders in the low middle income group of 50 nations.5
Owing to the mismatch between need and support, people obtain medical emergency loans from various formal sources such as banks as well as informal sources such as moneylenders, friends and relatives.
Banks typically adopt a risk-averse and traditional approach of risk-based underwriting. The lower strata of society, who generally do not have a credit history, tend to bear the maximum brunt and are denied loans. Some of the challenges faced by people seeking loans are illustrated below:
Lack of adequate financing facilities
Given the mounting cost of healthcare and the impact it can have on a household’s financial stability, it is essential to make medical treatment more easily available and affordable.
While the government ramps up its efforts to protect the vulnerable sections of the nation’s population, the last few years have seen several non-banking financial companies (NBFCs) and FinTech companies enter the medical finance space in India.
The new entrants - medical loan start-ups, loan aggregators and P2P/online lending firms - are specifically targeting people who are outside the formal banking system and are mobilising technology and innovative solutions. They have been partnering with hospitals, healthcare facilities, banks and other financial institutions across the country in order to offer good quality healthcare and loans at competitive rates of interest.
A few key characteristics of these platforms which address the challenges in a traditional set-up are highlighted below:
The FinTech firms operating in this space typically have a lower risk of default. Many of them have deployed online-only models for quick turnaround. The leveraging of data to make decisions and guide the underwriting process brings down the risk of defaults on loans. Moreover, in the case of a medical loan, the amount is credited directly to the hospital’s bank account, thus eliminating the possibility of the misuse of funds.
Healthcare costs remain a major factor when households assess their budgets. The measures outlined below can strengthen the medical loan ecosystem and provide better support to households:
Currently, there are around 5–7 dominant players in this space. Even as new firms venture into the alternative lending segment and gain a foothold, it is necessary to establish a friendly and standardised framework to encourage the participation of more FinTechs in this segment as this can help in addressing the healthcare challenges in the country.
1.Yadavar, S. (30 January 2018). Budget 2018: India’s healthcare crisis is holding back national potential. Retrieved from http://www.indiaspend.com/cover-story/budget-2018-indias-healthcare-crisis-is-holding-back-national-potential-29517 (last accessed on 9 February 2018)
2.Malik, R. (28 January 2016). India is the diabetes capital of the world. Retrieved from https://timesofindia.indiatimes.com/life-style/health-fitness/health-news/India-is-the-diabetes-capital-of-the-world/articleshow/50753461.cms (last accessed on 9 February 2018)
3.Yadavar, S. (30 January 2018). Budget 2018: India’s healthcare crisis is holding back national potential. Retrieved from http://www.indiaspend.com/cover-story/budget-2018-indias-healthcare-crisis-is-holding-back-national-potential-29517 (last accessed on 9 February 2018)
4.Dutta, S. S. (14 December 2017). Over half the people pushed into poverty worldwide due to healthcare expenses are from India: WHO report. The New Indian Express. Retrieved from http://www.newindianexpress.com/nation/2017/dec/14/over-half-the-people-pushed-into-poverty-worldwide-due-to-healthcare-expenses-are-from-india-who-re-1727419.html (last accessed on 9 February 2018)
5.Yadavar, S. (30 January 2018). Budget 2018: India’s healthcare crisis is holding back national potential. Retrieved from http://www.indiaspend.com/cover-story/budget-2018-indias-healthcare-crisis-is-holding-back-national-potential-29517 (last accessed on 9 February 2018)
Partner, India FinTech Leader, PwC India