RBI Releases Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders

April 27, 2024

The Reserve Bank of India (RBI) has issued draft guidelines titled “Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders” to promote transparency in the digital lending space. The guidelines propose that Lending Service Providers (LSPs) should provide borrowers with a digital view of all loan offers available from willing lenders with whom the LSP has arrangements.

Many LSPs offer aggregation services for loan products, wherein they have outsourcing arrangements with several lenders.
In such cases, particularly where an LSP has arrangements with multiple lenders, the identity of the potential lender may not be known upfront to the borrower.
The RBI has observed instances of some fintechs gaming the system, leading to the need for enhanced transparency.

Key Proposals

LSPs shall provide a digital view of all loan offers available to the borrower, as per their requirements, from all willing lenders with whom the LSP has arrangements.
LSPs should adopt a consistent approach in ascertaining the willingness of lenders to offer a loan and disclose this approach on their website.
The digital view shall include the name(s) of the Regulated Entity (RE) extending the loan offer, amount and tenor of the loan, Annual Percentage Rate (APR), and other key terms and conditions to enable the borrower to make a fair comparison between various offers.
A link to the Key Facts Statement (KFS) shall be provided for each RE.
The content displayed by the LSP shall be unbiased and shall not directly or indirectly promote or push a product of a particular RE, including using any deceptive patterns or “dark patterns” designed to mislead borrowers.

Objectives

Enable borrowers to have prior information about potential lenders to make an informed decision.
Promote fair competition among lenders and prevent any bias or deceptive practices by LSPs.
Enhance overall transparency in the digital lending ecosystem.

About Digital Lending in India

Digital lending has grown rapidly in India, with the market expected to reach $350 billion by 2023.
The growth has been driven by factors such as increasing internet and smartphone penetration, digital payments adoption, and the availability of alternative credit scoring models.
However, the sector has also seen instances of malpractices, such as excessive interest rates, hidden charges, and aggressive recovery practices, leading to customer distress and even tragedies.

By empowering borrowers with clear information and preventing any bias or deception by LSPs, the guidelines aim to foster a more trustworthy and responsible digital lending ecosystem in India.

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