The Reserve Bank of India’s moves to regulate digital lending in India have raised doubts about the business models of many such lending apps active in the space.
Over the past two years, the number of applications offering online loans has increased sharply. Many of them, especially those offering payday loans, operate outside of regulations and tend to collect important personal data from a user’s phone.
Data can include media files stored on the device, contact lists, location data, and even call logs. This data has also been used by lenders to harass borrowers who fail to repay their loans. In many cases, debt collectors also call people on a borrower’s contact list and ask them to help them get their money back.
But the RBI’s recently released digital lending guidelines could very well put an end to that by limiting the type of information fintech platforms can collect. The guidelines state that regulated entities – banks and non-bank financial firms – must ensure that fintechs do not store borrowers’ personal information beyond basic details such as name, contact details and address.
While this may help stem the threat stemming from unregulated lenders, the restrictions may also play spoilsport for fintech lending platforms as a whole.
Guidelines will make a difference for fintechs that don’t run their own NBFCs, says four-year-old fintech lending company founder. Fintechs with lending ambitions begin their journey by being a marketplace to connect borrowers to lenders, this person said.
Once they have built up a sufficient user base and have information about their credit scores, income levels, occupations, and repayment histories, they can use this to design a search engine. subscription.
This, in turn, helps them decide what type of borrower they prefer to lend to on their own balance sheet, explained the founder quoted above.
Therefore, fintech lending platforms leverage the balance sheets of their lending partners to understand borrower profiles, select a subset they would like to lend to, and then make their own loans as they acquire a lending license. , usually via an NBFC.
This roadmap might just need an overhaul.
The current structure of the guidelines would require fintechs to have their own NBFCs. Buy Now Pay Later providers like Simpl operate without an NBFC license and others like MoneyTap or Capital Float (now called axio) only use them for a limited portion of their loans.
The fintech founder quoted above added that the capital requirements for acquiring an NBFC license are also likely to make it harder for new entrants to get into tech lending.
The NBFC license application requires a company to be registered and have a net funds position held of at least Rs 2 crore. Without customer data, it will also be difficult for fintechs to build their own subscription engines, the founder said.
According to former RBI Deputy Governor R Gandhi, compliance by regulated entities has increased as a result of these guidelines.