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RBI’s new FLDG guidelines propel fintech innovation & financial inclusion
June 22, 2023
In the past decade, India’s FinTech sector has evolved from niche players to integral solution providers, and now stands at the brink of unprecedented growth in technological advancements and financial inclusion.
The Reserve Bank of India’s (RBI’s) recent decision to allow Default Loss Guarantee (DLG) arrangements in digital lending has ushered in a new era of possibilities for the country’s FinTech sector. These guidelines, which provide clarity on lending arrangements between FinTechs, banks, and Non-Banking Financial Companies (NBFCs), are poised to reshape the landscape of the industry.
The release of the First Loss Default Guarantee (FLDG) guidelines marks a significant milestone for India’s FinTechs. It is the first time that the RBI has approved the FLDG program, which enables credit-risk sharing arrangements between FinTechs and regulated lenders like banks and NBFCs. Under the new rules, the RBI gives the green signal to the FLDG scheme, wherein unregulated entities offer guarantees to regulated lenders in the event of borrower defaults.
In this lending arrangement, a percentage of the default loan portfolio of registered entities is guaranteed by FinTechs or Lending Service Providers. FLDGs empower FinTechs to showcase their underwriting capabilities and earn the trust of banks and NBFCs.
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