RBI panel moots law to regulate digital lending

Context

A Reserve Bank of India (RBI) Working Group (WG) on digital lending, including lending through online platforms and mobile apps has submitted its recommendations.

Key recommendations by RBI

• A separate legislation should be enacted to oversee such lending.
• Setup a nodal agency to vet the Digital Lending Apps.
• A Self-Regulatory Organisation should be set up for participants in the digital lending ecosystem.
• Develop certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.
• Disbursement of loans should be made directly into the bank accounts of borrowers and servicing of loans should be done only through the bank accounts of the digital lenders.
• All data collection must require the prior consent of borrowers and come ‘with verifiable audit trails’ and the data itself ought to be stored locally. 

What is Digital Lending?

• Digital lending is the process of availing credit online.
• Its increased popularity amongst new-age lenders can be attributed to expanding smartphone penetration, credit range flexibility, and speedy online transactions.

Benefits of digital lending

• potential to make access to financial products and services more fair, efficient and inclusive
• mostly preferred by those who are generally not able to avail any credit through the formal sources of finance, like banks