Central bank bars P2P startups from giving default loss guarantee in tie-ups with NBFCs

economictimes.indiatimes.com:

DLG) to investors, as it furthers scrutiny on the digital lending sector.
The Reserve Bank of India’s directive dated April 26 is likely to impact operations of P2P platforms that relied on affiliates such as Uni, MobiKwik, BharatPe, Rupifi and others to source customers, industry executives said. Some prominent P2P startups with a strong affiliate business are Lendbox, LiquiLoans, Faircent and LendenClub.

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Typically, when an unregulated company enters into an arrangement with a lender to source credit for its customers, it is permitted to offer a small guarantee on the capital deployed. RBI permits DLG against such loans, allowing losses of up to 5% of total defaults to be covered by the company.

“DLG is not permitted on loans arranged on NBFC-P2P platforms,” the regulator said in an FAQ document.

Higher Customer Acquisition Cost

Experts are of the view that the regulator’s action will help improve governance in digital lending, but may also increase customer acquisition cost for P2P platforms. “For P2P startups, the cost of acquiring both lenders and borrowers is very high. Now, they will either have to redraw their partnership arrangements or switch to open market sourcing,” said a founder of a fintech lending startup.

Pointing out that P2P