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ARTICLE · 26 JUNE 2023

Analysing Default Loss Guarantee In Indian Digital Lending Space

AK & Partners
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In the history of Reserve Bank of India (RBI) committees and reports, it has always been the case that RBI implements the recommendations of its committees as is.

IndiaFinance and Banking
Anuroop Omkar
Anuroop Omkar
Kritika Krishnamurthy
Kritika Krishnamurthy

In the history of Reserve Bank of India (RBI) committees and reports, it has always been the case that RBI implements the recommendations of its committees as is. But in a serendipitous moment, RBI has officially anointed 'Default Loss Guarantee' ("DLG"), more commonly known as First Loss Default Guarantee (FLDG) legal (terms and conditions apply). This is the opposite of the recommendations of the Working Group on Digital Lending – Implementation" dated August 10, 2022, which called this model 'Rent an NBFC' in its report and asked for its ban.

What is FLDG?

For those unaware of FLDG, a digital lender can agree with a non-banking finance company (NBFC) that if a digital lender introduces any borrower to the NBFC and the borrower does not pay back a loan, the digital lender pays the NBFC a percentage of the default on the borrower's behalf. Most NBFCs and banks have been commercially demanding such underwriting from digital lenders to allow them to lend through

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