The RBI is considering enacting legislation to govern digital lending, according to a panel (#GS III)

Financial Inclusion & Cyber Security Challenges is the topic of discussion.

Why is it in the news?

  • The Reserve Bank of India's (RBI) Working Group on Digital Lending, which encompasses lending through online platforms and mobile apps, has released its recommendations.

The following are the proposals:

  • Such loans should be regulated by a separate piece of legislation.
  • Create a nodal agency for evaluating Digital Lending Apps.
  • The digital lending ecosystem's participants should form a self-regulatory body.
  • Create a set of technical baselines and make compliance with them a requirement for offering digital lending solutions.
  • Loans should be disbursed directly into borrowers' bank accounts, and loans should be serviced solely through the bank accounts of digital lenders.
  • All data collection must have the prior consent of borrowers and be followed by "verifiable audit trails," with the data being retained locally.

The advantages of digital lending include:

  • FinTech-led innovation is now at the core of the design, pricing, and delivery of financial products and services, up from a supporting role a few years ago; • The need of the hour is for a balanced approach to ensure that the legislative environment promotes innovation while also protecting data security, privacy, confidentiality, and integrity.

What are some of the disadvantages of using digital lending apps?

  • Customers are enticed by the promise of quick and uncomplicated borrowing, but borrowers are hit with excessive interest rates and hidden expenses.
  • On such sites, unacceptably harsh and heavy-handed recovery methods are applied.
  • They use agreements to acquire access to data on the borrowers' cellphone's.
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