First Loan Default Guarantee
Context: RBI has approved the First Loss Default Guarantee (FLDG) programme, which allows fintechs to partner with banks and NBFCs.
- This move is expected to strengthen the digital lending ecosystem and is seen as positive for data-tech NBFCs and fintechs.
- FLDG or ‘first loan default guarantee’ is an arrangement between a fintech company and a regulated entity (RE), including banks and non-banking finance companies.
- The FLDG scheme allows Indian fintechs to partner with banks and NBFCs.
- Under it, the fintech compensates the RE to a certain extent if the borrower defaults.
- This regulatory framework is based on the principle that lending business can be carried out only by entities that are either regulated by the Reserve Bank or entities permitted to do so under any other law.