- 04 June | MGP Strategy Series | GS Paper 4 (Ethics) with AIR 7 A.R. Rajah Mohaideen Click Here to register for the session →
- 04 June | GS Advance Program begins from 4th June 2026 | First 2 classes open to all Click Here to register for the event →
- 05 June | MGP Strategy Series | GS Paper 3 Strategy Session with AIR 406 Mannat Luthra Click Here to register for the session
- 06 June | Open Orientation on Essay Guidance Program (EGP 2026) Click Here to register →
- 07 June | Open Orientation for Current Affairs for Mains 2026 Click Here to register →
- 07 June | Sociology Optional Strategy Session with AIR 10 Ujjwal Priyank Click Here to register →
Source: The post is based on the article “Digital lending: No clarity, awaiting RBI response, say bank & fintechs” published in Indian Express on 5th December 2022
What is the News?
Two months after the Reserve Bank issued guidelines on digital lending, banks, non-banking financial companies and fintech players are still awaiting clarity on many aspects including the First Loss Default Guarantee(FLDG) system.
What is the First Loss Default Guarantee(FLDG) system?
FLDG is a lending model between a fintech and a regulated entity in which a third party guarantees to compensate up to a certain percentage of default in a loan portfolio of the regulated entities(RE).
Under these agreements, the fintech originates a loan and promises to compensate the partners up to a pre-decided percentage in case customers fail to repay.
The bank/NBFC partners lend through fintech but from their own books. FLDG helps expand the customer base of traditional lenders but relies on the fintech’s underwriting capabilities.
What are the concerns related to FLDG?
In the report by the RBI-constituted working group on digital lending, the group laid down the risks of FLDG agreements with unregulated entities. The other concern is that FLDG costs are often passed on to customers.
