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Paper Number :WP30/2023
Publication Date :Aug. 17, 2023

The digital lending industry has seen a remarkable growth in India over last few years. The Reserve Bank of India (RBI) has played a crucial role in supporting this initiative by establishing regulations and providing timely guidelines on digital lending to various regulated entities. The latest directive by RBI in June 2023 has allowed First Loss Default Guarantee (FLDG) as a safeguard among regulated entities and lending service providers against potential losses resulting from borrower defaults. The new regulation is likely to strike the right balance in the digital lending ecosystem, fostering innovation while effectively managing the associated risk.

In this paper, we discuss the evolution of the regulatory framework pertaining to digital lending in India and implications of latest FLDG related guidelines for the financial markets.