Digital lending to low-income customers needs careful consideration
The small note lending space has seen a flurry of regulatory activity lately. The Reserve Bank of India (RBI) has issued regulations for microfinance. To address customer protection issues attributed to digital lending practices, RBI has taken several steps in quick succession. It banned the loading of prepaid instruments issued by non-banks via credit lines, notified the recommendations of its digital lending task force and issued guidelines for it. These regulations define digital lending as “a remote and automated lending process primarily through the use of transparent digital technologies.” At the same time, industry reports have highlighted that more than 60% of digital lending via mobile platforms and apps are low New Income Borrowers (NTC). Lending to these customers using a remote and automated process is a powerful mix. In our quest for innovation, we must pause to reflect on the why, what and how of these loans and their impact from the client’s perspective The well-established microfinance (MF) model has embraced digitalization in a calibrated way while maintaining customer orientation.