A Few Minute Series-ECONOMY(3rd March)

DIGITAL LENDING

ConceptImportant FactsIssuesRegulation

Context

RBI cancelled the Certificate of Registration (CoR) issued to P C Financial Services Pvt Ltd, New Delhi, which was primarily engaged in mobile app-based lending operations through an app called ‘Cashbean’.

Digital Lending

A remote and automated lending process, majorly by use of seamless digital technologies in customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.

Benefits: 

• Streamlining the Application Process
• Digitizing the Lending Information
• Using Lending Information for Analysis
• Providing Loan Options for Poor or No-Credit Customers

MSMEs prefer Digital Lending over Traditional Lending

• Digital lending is mostly preferred by those who are generally not able to avail any credit through the formal sources of finance, like banks. 
• One of the major examples is the rise of growth of adoption by the Micro and Small Management Enterprises (MSMEs). 
• The online lending platforms have gained massive popularity among MSMEs post Covid as they were unable to secure finance through the traditional lending institutions and thus had to go towards digital lending.

Important Facts

 

 

 

 

 

 

 

 

 

Issues Related to Digital Lending

RBI Working Group

• A working group constituted by the Reserve Bank of India (Chairman: Jayant Kumar Dash, Executive Director, RBI) on digital lending through online platforms and mobile apps has submitted its report. 
• Enhancing customer protection and making the digital lending ecosystem safe while encouraging innovation.
• The group has recommended subjecting the digital lending applications to a verification process by a nodal agency.
• Setting up a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.
• Recommended introducing the ‘Banning of Unregulated Lending Activities Act’
• Research by the working group has shown that 600 out of the 1100 lending apps currently available are ‘illegal’ in nature.

 

The RBI is yet to come out with a comprehensive regulatory framework for digital lending