“Over the past one year, the cost of funds on the book has dropped by over 50 bps, from 9.63% to 9.12% from the December quarter last year to the December quarter this year. And given our cost of incremental debt, we should see progressive improvement in the cost of funds in the quarters to come,” said Lakshmipathy Deenadayalan, managing director, Five-Star Business Finance.
Across the industry, most large fintechs rated highly by credit rating agencies have seen a 50-basis points improvement in their borrowing cost over the last three quarters. One basis point is one hundredth of a percent.
Borrowing costs are an important for financial services startups. Industry insiders pointed out that as costs reduce for these fintechs, it will help them improve their business yields and they can eventually offer lower interest rates to their customers as well.
Additionally, with players like Fibe securing $40 million from large investors like International Finance Corporation, Flexiloans raising $80 million in funding from Fundamentum Partnership and Accion Digital Transformation, the confidence of the larger banks and NBFCs in fintechs has grown.
“Overall interest rates for the business are getting better,” said Sanjay Sharma, managing director of Aye Finance that is currently going through the IPO book-building process. Sharma added that currently Aye Finance gets around 30% of its loans from banks, which the management wants to increase to 50% over time.
Industry insiders also pointed out that with lending players going public, market confidence will also rise. Aye Finance is set to be the first new-age lending company going public. Kissht has already filed its draft papers for a public listing.
“With global investors coming on board, in our case, it helps build confidence among banks to extend credit lines at more competitive rates. This broader trend is also reflected in recent credit-rating upgrades across the sector,” said Akshay Mehrotra, managing director, Fibe, a Pune-based consumer lending startup.
The more fintechs can raise from banks, the better is their cost of capital, and eventually the business gets more sustainable.
This development comes at a time when unsecured lending is showing very early signs of picking up and consumer lending startups and small business lenders are seeing an uptick in volume.
“There is a very marginal impact in borrowing cost for us, also some benefits of lower interest rates passing on to customers is taking time, but overall, the market is showing signs of picking up,” said Rohit Garg, cofounder of Olyv, a Bengaluru-based consumer lending startup.
Industry insiders also pointed out that delinquency rates have started showing signs of improvement across sectors, especially for loans given out based on digital transactions being done by a business or against invoices.
In its recently released industry report on the health of fintech startups, credit bureau Experian pointed out that net 90+ delinquency or loans that have not been repaid within 90 days has reduced to 2.7% in December 2025 from 3.6% in December 2024.