Funding for digital lending startups has more than halved this year as investors become more cautious and selective about deploying capital in the sector, even though demand for digital credit remains robust. This slowdown reflects a broader recalibration of valuations and investment strategies rather than a fundamental weakening of the underlying lending business.

Key Highlights

• Funding for digital lending startups has halved as investors turn cautious despite strong credit demand.
• Venture capital now prioritizes sustainable models and disciplined growth across India’s digital lending ecosystem.

According to data from Venture Intelligence, investments in lending-focused startups have dropped to approximately $752 million so far in 2025, down sharply from about $1.53 billion in 2024. Deal activity has also softened, with the number of funding rounds falling to 53 from 69 a year earlier. Despite this decline, lending startups continue to play a prominent role in fintech investment, representing around 40 per cent of the 134 fintech deals recorded this year.

The moderation in capital inflows comes at a time when digital lenders are still experiencing strong credit demand. Data from the Fintech Association for Consumer Empowerment (FACE) shows that in the first half of the current financial year, digital platforms sanctioned about 64 million personal loans worth ₹97,381 crore — marking growth in both volume and value compared with the same period last year. Average loan ticket sizes have also increased, indicating healthy consumer demand.

Also Read: Experian Says Unsecured Lending Boosts Credit Access in India

VCs say the funding moderation is part of a broader correction in startup financing, where investors are prioritising sustainable business models and tighter capital discipline. As the digital lending ecosystem matures, sharper due diligence and valuation expectations are reshaping how capital is allocated within the fintech landscape.

Overall, while investment activity in the segment has slowed, strong credit demand trends suggest the market remains active and capable of drawing targeted capital where fundamentals are solid.