Fintechs to get self-regulatory organisation in 3-6 months, say industry players

A self-regulatory organisation (SRO) for the fintech and digital lending industries will come up in the next three to six months, industry players involved in the discussions with the regulator said.

An SRO is a non-governmental organisation (NGO) that sets monitoring standards for industry players and works as a bridge between the industry and the regulator. For example, MFin is an SRO for the microfinance sector.

Industry players from the Digital Lenders Association of India (DLAI) and the Fintech Association for Consumer Empowerment (FACE) said that discussions are constantly on with the Reserve Bank of India (RBI) to formulate an SRO for the industry.

“We are expecting final guidelines from the RBI on the SRO in the next three-six months. We are constantly engaging with the regulator,” said Jatinder Handoo, Chief Executive Officer (CEO), DLAI.

Additionally, the SRO, once formed, will provide industry players with clarity on the code of conduct, business model, etc.

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“Issues around business models are being discussed with the regulator. The SRO will focus on the code of conduct (CoC) for the sector, overall infrastructure, etc., which will provide opportunities and clarity to the industry,” said Anurag Jain, Founder and Executive Director, KredX.

Call for SRO

RBI Governor Shaktikanta Das, on September 6, urged fintechs to establish an SRO over the next year. "I would like to use this opportunity to urge and encourage the fintechs to establish a Self-Regulatory Organisation themselves," Das said in a speech at Global Fintech Fest (GFF) 2023 in Mumbai.

Das further said, “Digital innovations, at times, have also led to cyber-risk and data security-related issues. Illustratively, the mushrooming of illegal loan apps, many of which had their origins in foreign jurisdictions, has led to serious concerns about breaches of data privacy, unethical business conduct, the levying of exorbitant interest rates, and harsh recovery practices.”

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Earlier, following the October 2023 MPC meeting, Das said that RBI is planning to issue a framework for SROs for regulated entities (REs).

Here, industry players said that in the past few months, RBI has been cautiously watching the fintech space. Additionally, with time, the regulator has introduced some measures and guidelines for the growing fintech space.

For example, in June 2023, the RBI announced its formal approval of the first loss default guarantee (FLDG) system with a cap of 5 percent. Earlier in September 2022, the central bank brought in digital guidelines for further clarity in the space.

“The central bank has been slowly formalising several aspects of the digital lending industry. We have seen substantial guidance on digital lending from the regulator,” said Aditya Kumar, Founder, Niro.

Major focus areas

Industry players said that the regulatory support in the form of guidelines for digital lending, FLDG, etc. shows that RBI is ready to support the growing fintech industry. Further, they said that the SRO, once formed, will lead to more clarity on the business model, security, growth, and overall business for the sector.

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“We would look at more investments coming in as the sector would have some monitoring and regulatory oversight,” Handoo said.

Additionally, industry players said that companies that have a risky model will have to rework their operations or shut shop.

Jain said, “Entities that are working on models that are not viable will not come under the umbrella of the SRO.”

" A regulatory framework for digital lending SRO will bring clarity and credibility to an association like us as we build our self-regulatory work, converging membership around compliance and customer protection," said Sugandh Saxena, CEO, FACE.Further, Saxena added: "Digital lending is complex with multiple players focussing on varied product and market segments, but customer protection provides a shared language to converge the membership and industry on the SRO."