Can stricter regulations strengthen an industry or curb it?
As the popularity of digital lending increases, the central regulatory body – the RBI, has once again taken steps to ensure protection for the borrowers.
But why is the RBI stepping in?
Well, the main reason is transparency and prevention of harassment by the lenders. In many cases, the lenders do not fully disclose the terms of repayment, cost of borrowing and consequences of delay. On a digital level, the lenders scrub the borrower’s phones aimed at making the borrower a social outcast if the borrower faults on the repayment. This is something that the RBI is aiming to cease with immediacy.
We believe this is fair and called for.
Why? Well for starters, these regulations are not meant to kill the industry, rather, aimed at making the lending market more sustainable and stronger, giving it longevity, and enabling sustenance of the ecosystem, the RBI guidelines may make a few fintech companies change their models to convert into a Regulated Entity or a Lending Service Provider.
These rules also increase the transparency of the process and ensure that it attracts only serious, long-term fintechs who have a solid lending model.
While the guidelines may see some backlash initially from lenders who operate a buy-now-pay-later scheme and split repayment options, it will eventually increase trust of borrowers leading to more repeat transactions. In the long run, for any business, depth is more important than scale and these rules will help increase the depth and agility of the digital lending ecosystem.
What does this mean for fintechs?
1. Process – underlying processes such as reworking their servicing agreements to remove a third party from the borrowing process between a borrower and a RE or an LSP.
2. Transparency – fintechs need to adhere to stricter and more legitimate norms of transparency and data privacy.
3. Agility – regulatory changes are nothing new. RBI is a body that will protect the consumers. These rules were coming and probably more. Fintechs need to be agile and adapt to changes that will only ensure that they win in the long-term.
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