The government has proposed a bill to regulate digital lending and create an online database listing authorized lenders while tackling unauthorized apps. The bill includes provisions for ethical lending practices, reporting illegal lenders, and a central repository for regulated lenders to address consumer concerns about unauthorized entities in the digital lending ecosystem.
Key Proposals of the Bill
- Online Database of Regulated Lenders: The government plans to establish a centralized repository to list all regulated lenders, enabling consumers to verify authorized entities.
- Regulation of Unregulated Digital Lending: Activities not currently covered by existing laws, except loans to relatives, are included under this bill.
- Definition of Public Lending Activities: Lending activities conducted by individuals or entities for profit are considered public lending, excluding loans to relatives.
Industry Reactions
Experts are calling for a principle-based approach to ensure innovation in the Indian fintech sector is not stifled. According to Soumitra Majumdar, Partner at JSA Advocates & Solicitors, the draft bill’s prescriptive approach may hinder the sector’s momentum.
RBI’s Role and Initiatives
- Digital Lending Apps Repository: The RBI has proposed a public repository of digital lending apps (DLAs) used by regulated entities to help consumers distinguish authorized apps from unauthorized ones.
- Action Against Unauthorized Apps: Between 2021 and 2023, Google removed thousands of unauthorized loan apps from its Play Store following government directives.
Addressing Consumer Concerns
The proposed central repository aims to establish a foundation for ethical lending practices, addressing the lack of transparency in digital lending transactions. Mayank Arora, Director-Regulatory at Nangia Andersen India, highlighted the issue of consumers being unaware of real lenders due to the absence of physical interactions, which unregulated entities exploit.
A Step Towards Ethical Digital Lending
The new bill reflects the government’s commitment to protecting consumers and enhancing transparency in the digital lending ecosystem. By curbing unauthorized entities and creating a regulated framework, the bill seeks to build trust and stability in the digital financial sector.
