India: Adopted Guidelines on Default Loss Guarantee in Digital Lending

On 8 June 2023, the Reserve Bank of India (RBI) adopted the Guidelines on Default Loss Guarantee in Digital Lending. The Framework emphasises that lending must be conducted by entities regulated by the RBI or authorised by applicable laws. Further, they aim to regulate the loss-sharing arrangements in digital lending, specifically default loss guarantees (DLGs) or first loss default guarantees (FLDGs). The Guidelines define DLGs, establish eligible providers and how they have to be structured. Further, it sets due diligence rules and certain exceptions. The Guidelines allow unregulated fintechs to engage in digital lending with clear regulatory standards for DLG arrangements.