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Digital Lending Report: First Loss Default Guarantee and Buy Now, Pay Later models might undergo changes, say experts

The RBI's internal working group has made vital recommendations and suggestions for the growing digital lending ecosystem.

November 22, 2021 / 05:03 PM IST

Recent recommendations of a Reserve Bank of India (RBI)-appointed internal working group on digital lending, if accepted, may effect major changes in the business models of digital lenders, including the First Loss Default Guarantee (FLDG) and Buy Now Pay Later (BNPL) models, experts said.

On November 18, the RBI released the report of the working group on digital lending, which addresses key grey areas and how they can be regulated.

Some of the key recommendations include setting up a nodal agency for verification of digital lending applications, setting up a self-regulatory organisation, and allowing lending by balance sheet lenders only.

The recommendations act on three levels: regulated entities, authorised entities and unregulated entities (including third-party service providers in the financial world).