Entrepreneurship Industry News

In the absence of RBI guidelines, a code of conduct for digital lending startups

BENGALURU: The Digital Lenders Association of India, an industry body of about 20 startups in the digital lending space, has laid down a general code of conduct for its members which is likely to ensure more transparency in this nascent sector yet to be governed by specific guidelines by the Reserve Bank of India.

Some of the best practices formulated by the association include the suggestion that players should disclose facts they verify about borrowers, though not confidential information. They should also clarify the collection procedures by putting up this information on their websites.

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“Currently , not many lending companies put up information around collection procedures or risks involved on the website. Secondly , there are also several companies which have not received any venture capital funding and do not have proper guidelines or monitoring for lending. So, this code of conduct will help them set good practices as well,” said Anurag Jain, spokesperson for the association.

Among other points in the code of conduct are the need to make risk warnings clear to customers, disclose all fees payable by borrowers, and protecting the confidentiality and sensitivity of information of customers. The association was formed in October of last year with leading players in the space including SME lending companies Capital Float, Lendingkart, and Indifi Technologies, personal loan enablers Finomena, IndiaLends and ZestMoney, and invoice discounting platform KredX.While some of these companies hold NBFC licences, many others work in partnership with NBFCs.

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The association was formed to ensure good practices in the sector and to avoid the crisis that the microfinance industry faced several years ago, wherein collection practices had led to a spate of suicides among indebted borrowers.Jain said the association is not looking to become a proxy regulator for the sector. He said disqualification from the association will happen only on the grounds of gross misconduct by a member.

Lizzie Chapman, cofounder of ZestMoney, said such best practices could also help new-age lending companies design their products around privacy and customer relationships.

“Digital lending companies do not have relationship managers like banks and older lending institutions do. The guidelines have pushed our company towards more transparency,” she said.

However, some industry experts feel the digital lending space is still being disrupted, and guidelines may be too early. “A lot of new lending models are evolving, and not many have seen successes. When there is still so much flux, laying down any co de of conduct may be too early,” said Adit Parekh, principal, at Blume Ventures, who looks closely at the digital lending space. “These startups may benefit from collaborating with legacy players and larger NBFCs on best practices.”

There are currently 263 companies in the digi tal lending space, in cluding credit sco ring startups and loan comparison platforms. Of this, 180 were founded starting from 2015 and 63 of these firms are funded, according to Tracxn.

Read More: economictimes.indiatimes.com