Digital lending regulations: Impact on businesses, buy now pay later products and more

The digital lending sector has been waiting for a regulatory framework and needed clarity on multiple facets. Now there is now a clear indication of the key themes of regulation for digital lending in India.

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The digital lending sector has found itself a peculiar place as it has a clear roadmap for regulatory framework but no detail around what the guidelines will be.

The RBI had come up with a regulatory framework for digital lending on 10th August which includes an implementation plan for the recommendations of the Working Group on Digital Lending.

These rules are applicable to all the entities that are regulated by RBI and the Fintech Platforms or lending service providers or digital lending applications that have partnered with REs to offer digital lending products.

The Digital Lending Regulations include a three-stage plan for implementation:

  • Rules under Part I will have immediate effect.
  • Rules under Part II reflect recommendations of the Working Group that are accepted in principle but require further consideration.
  • Recommendations under Part III for the Government of India to consider.

Two big takeaways for the industry are that the first loss default guarantee model (FLDG) for lending has been allowed but will be regulated, and there are unlikely to be regulated or caps on interest rates. The digital lending regulation will, however, have some significant implications for business.

The digital lending sector has been waiting for a regulatory framework and needed clarity on multiple facets. Now there is now a clear indication of the key themes of regulation for digital lending in India.