JOIN USWhy digital lending needs more regulation
In the last few months, a few digital lending apps have come under the media scanner of law enforcement officials in India for indulging in unlawful practices, especially while collecting dues.
The police has since traced these apps to unregistered and illegal entities. Some common features of these platforms are: a very short tenure, high interest rate and quick loans with minimal KYC.
The Digital Lenders Association of India (DLAI) believes there is a clear demarcation between legal, regulated entities and dubious firms.
For instance, payment banks in India can accept deposits but are not allowed to extend a loan to their customers. Lending in any form continues to be tightly regulated by the Reserve Bank of India. All digital lending firms therefore operate under three broad organisational structures (as mentioned in the box).
Most of the underlying regulatory protections in lending are carried forward to digital lending. But the digital mode does amplify some risk factors. For example, tighter integration of lending with business transactions such as invoice financing (borrowing money against amounts due from customers) can blur the boundaries between transaction ownership and credit facility.
So it is important to anticipate and proactively address such risks, and limit the scope for any fraudulent activities.
At DLAI, we have been proactive in ensuring our members follow a strict code of conduct that serves as a guideline. It covers multiple aspects such as interest rates, recovery mechanism and data privacy.
But some measures need to be taken to contain the proliferation of these unscrupulous apps and ensure they do not contaminate the digital lending space in future.
(The writer is executive committee member, Digital Lenders Association of India)