India’s fintech startups welcome RBI’s ‘customer-centric’ rules on digital lending

India’s fintech startups, yesterday, welcomed the comprehensive rules on digital lending released by the Reserve Bank. The rules provide clarity that only regulated entities can offer loans and stipulate that a consumer must be told upfront what the total cost of a digitally sourced loan will be. Explicit consent must also be sought to collect data, with the option to delete it. Notes: India’s fintech startups that had been in a bit of a quandary after the Reserve Bank of India’s diktat on prepaid instruments and loans earlier this year, yesterday, welcomed the comprehensive rules on digital lending released by the central banker. Reserve Bank published the rules following the recommendations of a working committee on digital lending on its website, divided into those that have been accepted for immediate implementation and those that have been accepted “in principle, but require further examination.” “The RBI has demonstrated consumer centricity … we welcome the regulation,” Gaurav Chopra, founder and CEO of IndiaLends, said in an email. “Most new customers today are borrowing for the first time and a growing share is coming through digital channels. That’s where we believe a framework ensures responsible players are rewarded for working in the interest of the consumer,” Chopra added. India’s fintech revolution is widely seen as a success at the scale of a billion people. Starting with the Unified Payments Interface, India is adding financial infrastructure including the accounts aggregator platform, and, in the broader, online commerce market, the open network for digital commerce that has seen support from the world’s biggest tech companies, including Amazon and Microsoft. The subcontinent is also seen as one of the most promising markets for financial products such as BNPL or ‘buy now pay later.’ Entrepreneurs like Chopra say that the RBI working committee’s recommendations are a step forward in addressing issues related to lack of transparency, data protection, and privacy, as well as user consent. The clarity on rules will “only boost consumer confidence and trust in the credit system and will allow players like us to continue our business without any changes to the business model,” Chopra says. Some of the highlights of the rules are as follows: All loan disbursals and repayments are required to be made only between the bank accounts of the borrower and the regulated entity (like a bank or an NBFC) without any pass-through/ pool account of the lending service provider (like a fintech startup) or any third party. Any fees or charges payable to the lending services provider in the credit intermediation process must be paid directly by the regulated entity and not by the borrower. A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract. An all-inclusive cost of digital loans in the form of an Annual Percentage Rate (APR) is required to be disclosed to the borrowers. APR shall also form part of KFS. Data collected by digital lending apps should be need-based, should have clear audit trails and should be only done with the prior explicit consent of the borrower. RBI note: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54187 Theme music courtesy Free Music & Sounds: https://soundcloud.com/freemusicandsounds