In a study released on Tuesday, research company Chase India suggested creating a self-regulatory organisation (SRO) for the digital lending sector in light of the government crackdown on illicit loan applications.
The whitelisting framework for digital lending apps (DLAs) study aims to promote the industry by outlining a suitable regulatory approach in the field and giving legitimacy to the DLAs' business practises and operations.
The whitelisting framework was developed by Chase India with participation from industry participants.
The framework was also suggested for adoption as a common code of conduct for DLAs in the study.
It includes information on the standards for the DLAs' legal foundation, commercial operations, secure handling of technology and data, client safety, and complaint resolution, among other things.
The creation of a self-regulatory body or the designation of a nodal agency within the regulator's jurisdiction for the digital lending sector were recommended by Chase India.
The research also suggested expanding the function of such DLAs and establishing a Public Credit Registry (PCR) to fortify credit lending systems.
These suggestions are intended to promote stability and progress in India's digital lending ecosystem and safeguard the interests of each stakeholder group.
The underserved credit markets in India are being served by a number of fintech companies, notably for small-ticket loans.
“Whitelisting frameworks are urgently needed to promote responsible participants in the industry while fostering innovation, however, since the unregulated practises of DLAs endanger the economic foundation of the nation. Customer protection and industry expansion will be balanced as a result, according to Kaushal Mahan, vice president of Chase India.
The government has recently been aware of an increase in unlawful loan applications that provide loans to people, especially those who are members of vulnerable, low-income groups. These loans came with exorbitant processing fees and hidden costs in addition to the very high interest rates they were offered at. Additionally, these loan providers use predatory recovery strategies like extortion, criminal intimidation, etc.
In September 2022, the Ministry of Finance (MoF) convened a conference to discuss the proliferation of illegal loan apps in India. It was resolved that all DLAs should be put on a whitelist due to the seriousness of the problem.
In this respect, the finance ministry informed the Parliament in a response that the Ministry of Electronics and Information Technology (MeitY) has received a list of DLAs being used by firms under RBI regulation.
According to the MoF, MeitY shared the list with the appropriate App shops so that only the applications included in the list were made available on those app shops. As a result, applications that weren't included in the list were recently banned.
It has been discovered that the RBI will shortly provide a list of DLAs that have been specifically approved.