By: Siddharth Ugrankar, CEO and Co-Founder, Qila.io
Visit the office of any Non-Banking Financial Company (NBFC) today, and you can sense the anxiety in the air. Glorified as saviors of India’s credit sector—molding small commerce, rural lending, and people not included in banks on a day-to-day basis—they are struggling with a burgeoning threat: loan fraud and undue duplication of KYC.
From fictitious borrowers availing themselves of loans from multiple lenders, to recycled KYC documents in a co-lending arrangement merry-go-round, NBFCs are constantly playing catch-up. Traditional databases and siloed systems have not performed, and gaps large enough for the fraudsters to slip through are the outcome.
But a quiet transformation is underway—blockchain technology is emerging as a shield to guard NBFCs against these vulnerabilities.
The Growing Pain of Fraud and Duplication
Loan fraud is no longer simply false borrowers. Now, sophisticated schemes are being employed by fraudsters—synthetic identities, forged credit profiles, and simultaneous parallel loan requests—to manipulate the system.
For NBFCs, who annually lend billions to individuals and small businesses, these challenges entail:
• – Higher Non-Performing Assets (NPAs)
• – Credibility loss for investors and partners
• – Operational inefficiencies, particularly in co-lending where a lender shares a borrower’s profile with several banks.
Consider the case of co-lending: an NBFC may co-lend with a bank in order to offer loans jointly. Information of the borrower is routed through many different systems, many times in a handoff or semi-digital handoffs. If a single institution fails to notice a fraudulent ID or mismatched record, then the risk accumulates for the whole chain.
Repeated KYC attempts continue the issue. Same document verification is repeated again and again by every NBFC, wasting time and money and frustrating customers who are forced to input the same details again and again.
Certainly, there’s a need for a common single source of truth—a system safe, clear, and accessible to all those who are authorized.
Blockchain as the Game-Changer
This is where blockchain comes in. At a high level, blockchain is a distributed ledger technology—in each record, time-stamped, encrypted, and irreversible. A record added later cannot then be changed without consensus. For NBFCs, what this means is:
• – Safe Borrower Information: Verifiable borrower profiles can be stored on a blockchain as digital credentials. Such NBFCs can retrieve such credentials easily with explicit borrowers’ permission, minimizing duplication and ensuring authenticity.
• – Real-Time Blacklists: Suppose you have a defaulter at one NBFC. It might take weeks previously before others are made aware. With blockchain, you can update that defaulter entry in real time on a common ledger, informing all the partner NBFCs in real time.
• – Traceability in Co-Lending: In joint lending arrangements, every transaction—right from loan disbursement to repayment—is logged on blockchain. This creates a transparent audit trail accessible to all stakeholders, minimizing disputes and enabling trust.
Exploring Blockchain for NBFCs: Gaining Momentum
Some of India’s and world-thinking NBFCs are already experimenting with blockchain pilots.
• – Co-Lending Ventures: A few NBFCs are cooperating with fintech startups in the development of blockchain-driven co-lending platforms. Here, encrypted borrower data is seamlessly transferred back and forth between NBFCs and banks. Smart contracts programmatically divvy up responsibilities—such as who’s responsible for collection or risk assessment—to thereby hold each party accountable.
• – Fraud Monitoring Networks: Others are utilizing blockchain in constructing real-time networks for fraud detection. If a borrower raises a red flag in one corner of the ecosystem, the data is securely broadcast throughout the chain. This ensures fraudsters cannot simply “shop around” until they find a vulnerable lender.
• – KYC Utilities: Some NBFC consortia are coming together to develop blockchain KYC repositories. Such KYC information is stored in the repositories, reusable in institutions. No longer are borrowers requested to produce the same PAN card or Aadhaar again and again, and lenders are saved on redundant verification expenditure.
Effectively, blockchain is helping NBFCs change from separate silos to trust networks.
Human Impact: It’s More Than Technology
It is easy to get lost in technical jargon, but human story is a more engaging story. Blockchain offers borrowers a shorter, faster experience. No more endless submissions of papers, no back-and-forth journeys to branch offices, no delays while an institution holds up for another institution to verify facts.
For small entrepreneurs who rely on on-time loans to maintain their businesses afloat, blockchain-driven lending can be a question of survival versus shut-down. A Maharashtra farmer or a Rajasthan shopkeeper is a gainer when NBFCs are in a position to disburse loans quickly without fear of fraudulent overlaps.
For NBFC employees—credit officers, loan managers, compliance officers—the technology minimizes stress and workload. Rather than chasing after paperwork or untangling disputes, they are free for customer service and strategic build-out.
Roadblocks en Route
Certainly, blockchain is no panacea. NBFCs are confronted with challenges such as:
• – Interoperability for old systems not originally developed for blockchain.
• – Regulatory clarity, as RBI guidelines evolve around distributed ledgers.
• – Interoperability, for the co-existence of different NBFCs and banks on a single platform without competition.
• – Data privacy, striking a balance between transparency and the borrower’s right over their own data.
But they are challenges that can ultimately be addressed via proper partnerships and governance models. Already, Indian regulators are showing particular interest in blockchain for payments, and industry associations are laying out models for rollout.
Road Ahead: We Have to Work Together
Battle against duplication of KYC and loan frauds cannot be won in isolation. Adoption of blockchain technology by a single NBFC makes a difference, but ecosystem-level use is where real power resides.
Consider it a virtual safety net—it increases in strength with every NBFC added in the blockchain system. Collectively, they are capable of building a tapestry of trust where the fraudsters have fewer vulnerabilities to exploit and real borrowers have a frictionless experience.
As NBFCs innovate more and more and increasingly approach things digitally first, blockchain won’t just represent a technological uplift but a future-proofing key for them.
Conclusion
Loan frauds and duplication of KYC have long plagued NBFCs, eroding confidence and detracting from profitability. Blockchain holds out hope of a solution—a common, secured, and open infrastructure where borrower details are provable, blacklists are refreshed in real time, and co-lending alliances are conducted on trust, not paperwork.
Their promise is simple: NBFCs adopting blockchain won’t just reduce fraud but also earn the trust of regulators, partners, and customers at one stroke. It won’t be easy, but the reward—progress toward a world where credit flows readily, securely, and at scale—is exactly what we should aim for.