India’s fintech boom promised to close the credit gap. So why are millions still left behind?

Over the past decade, India has witnessed an explosion of fintech start-ups aiming to bridge various gaps in the financial ecosystem. Among the most persistent of these is India’s credit gap, a structural shortage of accessible, affordable, and timely credit for individuals, small businesses, and informal enterprises.

From the often-cited ₹25 trillion credit gap for MSMEs, to the unmet personal loan demand in semi-urban and rural India, to the under-penetration of affordable housing and education loans, the story repeats itself. FinTech’s, policymakers, and traditional lenders all recognize the problem. Many have even built their business models or schemes around solving it.

Yet, the gap remains stubbornly wide. Why?

Here’s what’s holding India back and what might help break through:

1. Too Many Players, Too Few Creditworthy Customers

Whether it’s a salaried worker in Tier-3 India or a small business in Jaipur, the number of truly “credit-ready” customers is far lower than assumed. Most lenders and fintech’s rely heavily on traditional credit scoring, income proofs, or digital footprints. As a result, a large part of the population remains invisible to these systems.

FinTech’s that manage to reach them often find it challenging to price risk appropriately, leading to high interest rates, increased defaults, and eventual retreat from the segment.

2. High Rates Kill Credit

The moment lenders venture beyond the well-understood “prime” segment, interest rates start to climb. In personal lending, it’s not uncommon to see APRs of 30–45%. For informal business lending, this can be even higher.

This approach limits affordability and undermines repayment capacity. It creates a self-fulfilling prophecy in which high-risk borrowers default at high rates, reinforcing lenders’ risk perceptions and further shrinking access.

3. Digital Distribution, But Offline Capital

Most fintech’s are digital-first, but most of India’s capital still lies with traditional banks, cooperatives, and NBFC’s that lack tech infrastructure or an appetite for small-ticket, short-term lending.

So even when fintech’s want to extend credit, they’re forced to partner with the same handful of API-ready lenders, effectively shrinking the lending universe from 3,000+ lenders to 15–20 digitally mature ones.

This results in capital bottlenecks, restrictive terms, and slow innovation.

4. Policy Initiatives Have Promise, But Are Still Maturing

India’s government has launched several visionary schemes and platforms to address the credit gap, from MUDRA loans and CGTMSE, to more recent innovations like, OCEN (Open Credit Enablement Network), Account Aggregator Framework, Jan Dhan-Aadhaar-Mobile (JAM) trinity.

But adoption has been patchy. These frameworks need stronger ecosystem buy-in, robust data governance, and simplified user journeys to move the needle.

Solving India’s credit gap requires more than just fintech scale or flashy tech. It needs:

• Better Risk Models: Go beyond bureau scores. Incorporate cash flow, psychometric, social, and behavioural data to assess real intent and ability to repay.

• Distribution Beyond the Usual: Use kirana stores, agri-networks, gig platforms, and other non-traditional touchpoints to reach new borrowers.

• Capital Base Expansion: Empower cooperative banks, MFIs, and regional NBFCs with digital lending rails not just APIs, but tools, training, and trust.

• Patience and Incentives: Both investors and policymakers need to support long-term experiments in underwriting, product design, and risk sharing.

How Saarathi Is Building for This Future

At Saarathi, we're focused on solving the structural, not superficial, problems in credit access.

We’ve launched Saarathi Bazaar, a first-of-its-kind platform designed to connect underserved borrowers with a wide pool of lenders, especially those who have the intent to lend but not the resources to build costly digital lending infrastructure or financial muscles to open branches everywhere.

With Saarathi Bazaar:

• Borrowers can share basic information in just a few clicks without handholding.

• Multiple lenders can evaluate the request and compete to offer the best interest rates and the highest possible loan amounts.

• No borrower data is shared until the borrower accepts an offer, helping eliminate the industry-wide menace of spam calls and data misuse.

By enabling discovery, competition, and privacy, we’re not just making credit accessible, we’re making it smarter and more borrower-friendly.

👉 You can Check out Saarathi Bazaar here

India’s credit story isn’t about one gap, it’s about many interlinked ones: personal, business, rural, urban, formal, and informal. Fintech can play a catalytic role, but only if it moves from targeting the "creditworthy" to making more people credit-ready.