Last month, RBI issued guidelines that made banks and NBFCs responsible for the conduct of the digital intermediaries hired by them to disburse microfinance loans. The government of India has now asked RBI to prepare a list of legal apps which only can be engaged in this lending business. The scale of the problem can be understood from the fact that, in January and February 2021, RBI found 1100 unique Indian loan apps available in over 81 app stores of which 600 apps were not approved. While unapproved apps are not desirable, it must be appreciated that they are a cheap source of microfinance availed by the formal and informal sectors. Unfortunately, there are still the menaces of money lenders in urban and rural India who charge 3-5% per month. And these loan apps have helped to promote financial inclusion on the lending side and curb the menace of the money lender. Lending apps work by the 2-1-0 formula, two minutes to decide, one minute to transfer, and zero collateral. All said and done about their utilities, they need to seek regulatory approval before engaging in the lending business. The best solution is loan apps in a regulated space. Only then can Fintech and financial inclusion grow with sustainability.
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