RBI has given approval to the FLDG framework, enabling FinTechs to form partnerships with Banks and NBFCs

The Reserve Bank of India (RBI) has approved the First Loss Default Guarantee (FLDG) framework, allowing fintech companies to partner with banks and non-banking financial companies (NBFCs).

This decision, announced during the second bi-monthly monetary policy outcomes, is seen as a positive development for data-tech NBFCs and FinTechs, strengthening the digital lending ecosystem, reports mint.

The FLDG scheme ensures that in case of default, the fintech firm originating the loan takes the first hit, promoting credit penetration and transparency.

The RBI's regulatory framework sets guidelines for FLDG arrangements, specifying limits and provisions to ensure risk management. This move aims to bring more clarity, boost digital lending, and encourage collaboration between traditional financial institutions and new-age fintech companies.

The RBI emphasizes that FLDG arrangements should not replace credit appraisal requirements, highlighting the importance of robust credit underwriting standards.