Hemant Gala, CEO of PhonePe Lending, identifies underserved micro-merchants in smaller towns as the primary engine for India's next credit growth cycle. Leveraging its vast digital payments network, the firm is deploying Default Loss Guarantee (DLG) models to bridge the information gap for lenders. With unsecured credit growth cooling to 13-15 percent, the focus shifts to bringing new-to-credit rural businesses into the formal financial fold.
Expanding the Financial Frontier
India’s credit trajectory is shifting away from urban saturation toward the country’s untapped hinterlands. Hemant Gala, CEO of PhonePe Lending, noted that future expansion depends heavily on the firm’s ability to connect institutional lenders with micro-merchants who operate largely outside the formal banking system. While unsecured credit growth has moderated from roughly 25 percent to a more sustainable 13-15 percent, the demand for credit remains robust among small-scale entrepreneurs.
The Role of Default Loss Guarantees
To overcome the reluctance of banks and Non-Banking Financial Companies (NBFCs) to lend to borrowers with thin credit histories, PhonePe is deploying its Default Loss Guarantee (DLG) model. This mechanism allows the platform to compensate lenders for losses up to 5 percent of a loan portfolio. By assuming a portion of the risk, the firm provides the necessary underwriting confidence to banks that would otherwise avoid these segments. This strategy is particularly effective for the 15 percent of PhonePe’s customer base currently identified as new to credit.
Scaling Rural Outreach
The company is leveraging its massive ecosystem—comprising 60 crore customers and 5 crore merchants—to capture market share. Beyond facilitating loans, PhonePe is actively increasing its physical footprint by rolling out 20,000 new UPI terminals, specifically targeting rural areas and Tier-3 cities. By establishing these touchpoints, the platform gathers the transaction data essential for assessing the creditworthiness of roadside vendors and small shopkeepers who have historically been ignored by traditional financial institutions. As these merchants integrate into the digital payment landscape, their transition to formal credit products becomes increasingly seamless, providing a long-term growth pipeline for both the lender and the digital distribution platform.