India's Need To Regulate Digital Lending Calls For Setting Up A National Lending Corporation

RBI recently cautioned users against unauthorised digital lending platforms that promise quick loans.

- Abhimanyu Girotra

The warning is timely as a few bad outliers can undermine the significance of digital lending. It is estimated that the credit demand from MSMEs and consumers would be more than $1trillion by 2023, a third of it is likely to be lent digitally.

India now has 2,147 fintech startups and almost 500 of them focussed on digital lending. These platforms play an important role as they lend to the segment which has traditionally been ignored by the banks. They have the ability to facilitate credit in the event that there are idiosyncratic problems in the banking and can also help banks with alternate credit assessment processes which can widen the base for lending.

Easier access to credit can also incentivise formalisation for MSMEs; as much as 40% of credit demand of MSMEs is still met outside of formal channels. But clearly more needs to be done. Exorbitant interest rates, misuse of personal information, collection horror stories are just a few things that have now started coming to the surface.