On June 08, 2023, the RBI’s Monetary Policy Committee (MPC) revived the popular bank-fintech partnership model and brought FLDG to life, albeit, with a new set of rules and stringent dos and don’ts for all three parties involved in a financial transaction — the fintech (LSP), the bank (RE) and the actual borrower. What the central bank has now proposed is as under:
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LSP to find the borrower.
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They would do so with a digital lending app. They could use a partner app or create an in-house platform.
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The RE will provide the loan.
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LSP will provide solid guarantees to banks; these could be a cash deposit, a fixed deposit (FD) maintained with any scheduled commercial bank over which a lien will be created in favour of the RE. It could also be a bank guarantee marked in favour of the RE.
The important caveat is that the fintech’s guarantee exposure has been capped at 5% of its portfolio amount. The attempt is to ensure that the fintech/LSP backing the guarantee is financially capable of fulfilling its obligations should a default occur.
Source: Barandbench
