Significance of Digital Lending
- The RBI has imposed these rules to prevent consumer misselling, unethical business practices, and outrageous interest rates.
- To prevent customers from excessive third parties being involved in digital lending transactions.
- It makes quick disbursal possible and aids in cost savings.
- Lending Service Providers (LSPs) collaborate with Non-Banking Financial Companies (NBFCs), which use the former’s platform to grant credit to clients.
- This platform has the capacity to lend more than a borrower is capable of.
Digital Lending and its Regulation
A remote and automated lending procedure known as “digital lending” makes extensive use of seamless digital technology for customer acquisition, the credit assessment, loan approval, payout, recovery, and related customer care. The Reserve Bank of India (RBI) established a framework to control online lending. It is disbursing and collecting loans via websites or mobile apps. It facilitates fast disbursal and lowers costs. However, these platforms frequently engage in risky behavior by lending to borrowers who cannot repay the money. The Reserve Bank of India (RBI) recently established a framework governing the nation’s digital lending market. The RBI launched a working group on digital lending, including online platforms and mobile apps, in January 2021. The panel was established as a result of worries about ethical business practices and customer protection that have emerged as a result of the boom in digital lending activity. Digital lending is one of the fintech industries in India. It has grown significantly from a volume of US$ 9 billion in 2012 to almost US$ 110 billion in 2019.
Furthermore, it is anticipated that by 2023, the digital lending market will have grown to about US$350 billion. Small borrowers without a history of credit history who conventional financial institutions don’t cater to, are among its clients in particular. Short-term loans, especially those with terms of fewer than 30 days, are their primary area of expertise. Commercial banks are quickly integrating into the category of financial intermediaries by either partnering with NBFCs to create synergies or by lending digitally.
To crack down on illicit activity by some participants, the Reserve Bank of India (RBI) has announced the first set of guidelines for digital lending. The RBI created a Working Group on “Digital Lending (WGDL), including Lending through Online Platforms and Mobile Apps to address the issues.” In November 2021, the group suggested more substantial standards for digital lenders; some of these standards have been adopted and are now part of the new standards, while others are still being looked at.
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