Understand the long-term impact of new RBI guidelines on fintech lending

Financial inclusion is absolutely indispensable for strong and all-inclusive economic development and it has always been a top priority of the current government. This country has the second largest unbanked population in the world with an estimated 190 million individuals without a bank account. Digital lending now offers technology-enabled solutions and a streamlined customer experience, causing a paradigm shift in the way the financial services industry, especially lending services, operates. This is of the greatest importance if we are to realize financial inclusion in the true sense of the word.

With the introduction of a number of lending mobile applications, bogus organizations other than banks and financial institutions recognized by the RBI started entering the lending market and things gradually seemed to get out of control. This was evident in the increase in the number of consumer complaints about excessive fees, fraudulent activities, lack of transparency and harassment during collections, data protection and security breaches. As a result, both the Government of India and the judiciary intervened, drawing the attention of the Reserve Bank of India (RBI).

According to RBI guidelines, licensed firms are the true legal lenders who should deal directly with borrowers unlike fintech platforms, which only serve as middlemen. In doing so, RBI has supported the strengthening of regulated organizations and recognized the concept of digital lending and its acceptance within accepted laws, both of which were eagerly sought after. Additionally, it can eliminate firms that operated in a totally uncontrolled setting that may have caused irreparable damage to the financial ecosystem and consumer confidence. The regulations are designed to be a win-win situation for financial institutions as well as technological entities to leverage respective capabilities and creativity in a collaborative manner, while securing the financial ecosystem.

The regulations will have a significant, all-encompassing impact as they will enable fintech to focus, and keep track of what they are doing right or wrong. Better customer engagement, greater transparency, strong corporate governance and building consumer confidence are some of the typical areas where a big difference is expected.

Are Indian fintech companies currently prepared to embrace these changes?

Yes, but business strategies need to be thoroughly reassessed, and corporate governance and business structures also need to be largely reassessed by companies. To manage and service loans, more attention must be paid to technology, regulatory reporting and loan servicing. There are areas where fintechs need to prepare and initiatives need to be taken in the coming months.

Overall, while a certain amount of checks and balances are necessary for digital lending and fintech to function seamlessly, regulators must also take into account that the guidelines support the growth of the modern banking players in this new regulatory environment. RBI Governor Shaktikanta Das assured the fintech industry that RBI would continue to support and encourage innovation in the space, at Global

Fintech Fest 2022. He added that they expect the ecosystem to be focused on governance frameworks, ethical business practices, legal compliance and risk mitigation.

If India wants to increase its share of small and medium enterprises (SME) contribution to GDP from 30% to 50% and even more, the fintech sector needs to be given a level playing field. Numerous finance companies received growth stage funding in 2022 alone, and many creative ideas have also been scaled. The future is likely to be rewarding for fintechs that are robust and determined to bring about sustainable change.

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