With advancements in technology and policies, almost every sector started depending on AI and technology heavily. The banking sectors are in the initial stage of incorporating technology in their framework but digital lending practices are already taking over the market because of the ease of its usage.
Even though Indians are not very fond of getting rid of the traditional methods as we feel that we have more clarity over those practices. However, to meet the demands of the market, people are starting to depend on digital lending options more.
As a result of that, RBI rolled out a bunch of new policies recently for the safety of the consumers. Even though the usage of digital money lending services has seen an upsurge since the outbreak of the pandemic, there is no such set of proper rules and regulations for scrutinizing or for reducing the malpractices conducted through these money lending mediums.
Laws and Ideas proposed by the RBI Working Group
The RBI has set up a committee on January 3, 2021, for monitoring the digital lending practices including the ones through mobile apps, banking apps, and online platforms. It has been observed that the agencies and private bodies offering money lending services digitally has increased a lot in order to meet the needs of the people availing this service.
Besides that, over the years, it has been estimated by several reports that the credit-based demand of MSMEs is pretty high. But in most cases, the entire supply scarcely does meet those needs. There is a huge gap which the financial bodies and banks are unable to accomplish yet.
That is why digital lending services have gained so much significance over the past few months. The main motive of the Working Group of RBI is to make this digital lending ecosystem to be safe and secure and to incorporate innovative practices for better functioning.
Some of the key points as proposed by RBI are:
- To set up a Self-Regulatory Organisation (SRO)
As stated earlier, the number of bodies offering digital lending services has increased rapidly and is still growing. That is why it is extremely necessary to set up a committee that will keep track of all these participants working in the lending ecosystem.
- Put through the Digital Lending Apps to a verification process by a nodal body
The traditional verification methods end up taking weeks or sometimes months to get completed. But with the assistance of AI, it takes hardly some seconds to get done with the verification process. So RBI has decided to set up a nodal body that will take care of the verification process of the Digital Lending applications.
- A separate set of rules for preventing illegal activities
As digital banking or lending activities were never so important before, no such regulations have been set up for the security of the customers. But with the increase in usage of it, the RBI has proposed to frame a set of legislation in order to prevent illegal digital lending activities.
- Disbursement of loans directly into the bank accounts of borrowers
In many cases, people often opt to disburse the loans in some other persons’ account or at times the servicing of loans happens from random accounts which are not directly linked to the lender. According to this policy, the disbursement of the loan must happen directly in the borrowers’ account and all processes related to it should be conducted only through the lenders’ bank account.
- Developing the technology to a certain standard for meeting all kinds of needs
In order to offer digital lending services to consumers, the applications need to be equipped with certain technologies and features and only then it will be allowed to participate in the ecosystem.
- Data to be stored in Indian servers only
All the clients’ data need to be gathered only after getting full consent from the borrower along with their verifiable audit trails. Besides that, all the data needs to be stored in servers which are located in India.
- Algorithm features to be documented
In order to maintain transparency, it is a must to document all the algorithmic features used by digital lending.
These are some of the main key points which have been included by RBI in their policy. In order to go through the whole report, you can check their official website.
The report on digital lending has been released on their official website mainly for knowing the viewpoints of the stakeholders and also for finding out the views of the consumers.
If you are offering digital lending services or are planning to launch an app offering money lending facilities, consult with Pirimid Fintech and know our suggestions at first, so that you can design the application according to the trending needs of the market and also according to the policies of RBI.