Why lending problems are about reach, execution and not just tech

A decade of digital investment has transformed the front end of credit in India. The back end, where decisions get made and borrowers actually get served, is a different story.

A small business owner walks into a branch, documents in hand. The application goes in digitally. A credit score comes back in minutes. And then the file stops moving. A field visit is needed, a second document is requested, a local detail needs checking. The technology has done its part. The decision has not.

This scene plays out every day across lending institutions in India. And it points to something the industry needs to reckon with more honestly. The problem in credit access today is less about technology and more about reach and execution.

Access Is Up. The Gap Persists

India's MSME sector has seen genuine progress on credit. Bank lending to MSMEs grew 14.1 per cent year-on-year in FY25, outpacing both retail at 11.7 per cent and services at 11.2 per cent, according to RBI data. The MSME share of total bank credit has reached an all-time high of 17.7 per cent.

Yet a SIDBI and TransUnion CIBIL report from May 2025 estimates the MSME credit gap at roughly Rs 30 lakh crore, with nearly 47 per cent of new MSME borrowers in FY25 being new-to-credit, indicating a large and growing segment of the market is still in its first encounter with the formal system. Technology has improved access to the process. It has not yet closed the distance to the borrower.

The Last Mile Is Still Human

In most of India, a lending decision is still a judgment rooted in local knowledge. Understanding a small transport operator, a kirana owner or a manufacturing unit is not just a question of reading GST data and account statements. It needs familiarity with local markets, seasonal cash flows and the informal obligations a borrower may already be carrying.

Branch teams and field officers do work that a scorecard cannot. They validate the story behind the numbers, spot inconsistencies and build trust with first-time borrowers who may otherwise abandon the process entirely. For a borrower from a Tier 3 town with no bureau history, the relationship with a local officer is often the difference between completing an application and walking away.

As more journeys shift online, last-mile engagement is increasingly treated as a cost to reduce. For a large part of the informal and semi-formal segment, it is still the most important factor in whether credit actually reaches those who need it.

Execution, Not Platforms, Is the Bottleneck

Many lenders today run broadly similar technology stacks. Credit engines, loan origination systems and digital workflows are widely available and no longer a source of competitive advantage the way they were five years ago. Yet outcomes vary significantly across institutions serving the same geographies and customer types.

The difference usually lies in execution. Processes that look clean in policy documents play out unevenly across branches and teams. Turnaround times slip not because systems are slow, but because exceptions, verification flags and approvals are handled differently by different people in different locations. In some branches, frontline staff treat system outputs as a genuine decision support tool. In others, it becomes a compliance checkbox and older habits take over.

Building a platform is a finite project. Making it work consistently across thousands of people and millions of customers is an ongoing discipline. Lenders that perform well on both growth and asset quality in the same market environment rarely have radically different technology. They tend to have tighter process discipline and a clearer sense of where human judgment should complement the system rather than quietly override it.

Data Helps. It Does Not Decide

AI and alternative data have expanded what lenders can see. GST flows, payment behaviour and account level analytics now allow institutions to evaluate borrowers who were previously invisible to a traditional bureau-based model. The proportion of subprime borrowers in banks' MSME portfolios has dropped from 33.5 percent in June 2022 to 23.3 percent in March 2025, a meaningful shift in risk quality. 

The limitation is that formal credit still meets only 16 to 19 percent of total MSME credit demand, and a large portion of enterprises either have no bureau history or have one built from personal rather than business borrowing. Significant borrower behaviour remains only partially visible, and human judgment fills that gap. It always has. 

There is also a responsibility dimension. As products grow more complex and digital journeys more crowded, less experienced borrowers can end up in unsuitable products without realising it. Regulatory emphasis on explicit consent, product suitability and transparent communication reflects exactly this risk. Last-mile engagement is not just a credit function. It is a customer protection function.

What Needs to Change

India has built the infrastructure. The challenge now is making it work better and reach further. That calls for a few deliberate shifts.

Invest in last mile capability with the same rigour applied to platforms. Equip frontline teams to interpret outputs, understand local context and feed ground level insight back into credit policy. Design processes for real borrower behaviour, not ideal conditions: intermittent connectivity, incomplete documentation and borrowers who need explanation, not just access. Track execution quality as seriously as portfolio metrics, because turnaround variation and exception volumes are often the earliest signal of where a process is breaking.

The real measure of progress in lending is not how fast a system scores an application. It is whether borrowers who can repay are actually able to receive credit, reliably and at a reasonable cost. India has largely solved for speed. Reach and execution are where the next gap will close.

Vinod Kumar

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Vinod Kumar is Chief Digital Officer at Shriram Finance.