In recent weeks, Digital Lenders Association of India (DLAI) has issued a fresh code of conduct for all its members emphasizing the need to propagate responsible lending practices and to ensure ethical collection practices are in place especially given the challenging macro-economic environment in the country. Digital Lenders Association of India members collectively serves more than 50million borrowers in this country.
This new Code of Conduct is a set of principles, processes, and guidelines that are binding on every member of the DLAI in order to ensure ethical and responsible behavior by all and everyone needs to abide by the same. The purpose of this Code of Conduct is to ensure that the digital lending industry creates common safeguards of customer interests. For example, the new guidelines make it clear that a lender cannot build unethical features into their products such as excessively high (and non-transparent) late payment fees.
These borrowers are many and varied and comprise those taking education loans, working capital loans and medical loans. DLAI members focus on lending the micro-SME and SME community. Over the last 5 years, the digital lending community has been instrumental in ensuring last-mile credit supply and driving progressive initiatives such as India Stack, to make India a digital-first economy. At this current time, digital lending is even more vital to the economy and offers a safe way to continue credit supply to customers, during this period of social distancing.
A complete lockdown situation has also forced consumers to move to online channels which has resulted in increased adoption of digital lending products, a trend that is expected to accelerate over the coming months as customers will prefer self-serve products they can access at home, over going into a bank or meeting an agent. In addition, many banks (and other traditional lenders) are now looking to partner with digital lenders to increase their digital footprint in future.
India is truly a digital-first economy, and technology can speed up the development of industries and markets with phenomenal success. It can also allow for the rapid growth of unscrupulous practices that can fall between regulatory grey areas. With recent strong growth in the digital lending industry in India, there is a need for industry participants to maintain a strong code of conduct in order to prevent the rise of unscrupulous practices that could cause harm to the industry by reducing the confidence of customers, regulators, and other market participants.
The new Code of Conduct includes a number of new provisions, such as those that ensure transparency in pricing and a focus on late payment fees (which some unscrupulous lenders have been known to take to excess). It also provides clear guidance on fair and responsive collections practices such as not calling or threatening to call any family member of the borrower. Implementation of the new Code will be implemented with a strict process for compliance including active focus on training of the employees in the organisations.
With the fresh code of conduct being implemented for all its members, DLAI aims to set a precedent for the entire digital lending industry so that no company can engage in unethical practices.
About Digital Lending Association of India (DLAI)
DLAI is an association of 81 fintech entities, some of which are Systemically Important Non-Deposit taking NBFCs (SI-NBFCs). Our members have collectively disbursed more than Rs 200,000 crores in the last five years to more than 50 million urban small borrowers across 1500+ cities/towns in India. Borrower profile of our member institutions varies from micro manufacturing units (textiles, food processing, industrials, engineering, chemicals, healthcare, etc) to very small mom and pop stores (Kirana stores, restaurants, hardware shops, scrap dealers, etc). On the retail side, our members lend to employees of non-rated corporates as well as self-employed professionals for medical emergencies, education, marriage, and travel. More than 50% of the borrowers serviced are new-to-credit and have been denied formal credit by traditional financial institutions.