RBI panel recommendations to promote orderly digital lending growth, according to industry players

The recommendations made by the RBI’s task force on digital lending, including lending through online platforms and mobile apps, will foster orderly growth in the sector, industry players said.

In a comprehensive report, the task force formed by the RBI made several recommendations, including separate legislation to prevent illegal digital lending activities, subjecting digital lending applications to a verification process by a nodal agency, and establishing an agency. Self-Regulation (SRO) covering participants in the digital lending ecosystem.

Emkay Global Financial Services said in a memo that the proposals appeared to be largely constructive for the digital lending space and matched expectations.

That said, the introduction of regulations could moderate the growth rate of digi loans, which have seen strong near-term growth in countries like China and India (P2P), he said.

“However, the regulation would facilitate long-term orderly growth, similar to that of MFIs after 2010. At present, most BNPL credits are embedded in the bank / NBFC books,” he added.

Commenting on the recommendations, V Swaminathan, CEO of Andromeda and Apnapaisa, said that given the pace of expansion of digital lending, safeguarding the interests of consumers has now become the most important task of authorities as well as sector players.

The RBI task force has rightly argued for separate legislation to prevent illegal digital lending activity and an SRO covering participants in the digital lending ecosystem, he said.

“We have to make sure that consumers do not lose confidence in the players in the digital lending space. The task force has made important suggestions for the growth of the sector,” he said.

Welcoming the recommendations, the Fintech Association for Consumer Empowerment (FACE) said SRO is the call of the hour to structure the industry and set the rules for Fintech members and clients.

“We welcome the RBI’s decision to introduce higher standards of ethical behavior and code of conduct for digital lending platforms,” he said.

Gaurav Chopra, founder and CEO of IndiaLends and founding member of the Digital Lending Association of India (DLAI), believes that recommendations like auditable logs for every action a user takes on the app will be a game-changer for the industry. Indian digital loans.

“This will destroy many existing loan sharks and reduce unfair practices,” he said, adding that the report sought to protect consumers from unregulated digital lenders who have the potential to exploit borrowers with unfair terms or conditions. predatory.

Commenting on the report, Ankit Rata, co-founder and CEO of Signzy, said that if the recommendations are adopted, it will not only help protect consumers, but also limit data privacy breaches while limiting fraudulent transactions. .

The Reserve Bank of India (RBI) formed the task force chaired by Executive Director Jayant Kumar Dash on digital lending, including lending through online platforms and mobile apps, last January.

The task force was set up against the backdrop of business conduct and customer protection concerns resulting from the rise of digital credit business. Stakeholders can send their comments on the report to the RBI by December 31.

Lalit Mehta, Co-Founder and CEO of Decimal Technologies, said the RBI Digital Lending Task Force Report is a welcome initiative as it is an important step towards building an ecosystem of safer digital loan.

Digital lending innovation is crucial for the country as it has the potential to close the credit gap, especially among micro, small and medium enterprises (MSMEs) and the population living in under-banked areas, a said Mehta.

Raman Kumar, founder and chairman of CASHe, said digital lending has huge potential in a mass consumer market like India. However, a key deterrent is the ‘perceived’ lack of regulation when it comes to dealing with pure-play platform companies and new credit products to which the consumer is exposed, such as shopping based. on EMI or otherwise called BNPL (buy now, pay later).

Among other things, the group suggested developing some basic technology standards and meeting these standards as a prerequisite for offering digital lending solutions.

Loans, he added, should be paid directly to borrowers ‘bank accounts and only managed through digital lenders’ bank accounts.

Data collection with the prior and explicit consent of borrowers must have verifiable audit trails and must be stored on servers located in India.

It is further stipulated that the use of unsolicited commercial communications for digital loans should be governed by a code of conduct to be implemented by the proposed SRO.

Algorithmic characteristics used in digital lending must be documented to ensure the necessary transparency, says the report, on which the RBI invited stakeholders to comment until December 31.

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