Digital lenders should see self-regulating organisations not just as regulatory watchdogs, but a step towards embracing digital stewardship

By Srinath Sridharan

India has achieved a remarkable feat through its Jan Dhan-Aadhaar-Mobile (JAM) trinity, setting the stage for digital adoption across everyday life, across geographies, languages, socio-economic backgrounds, and age groups. With government policies facilitating greater digital engagement and RBI steering technology-led innovation into mainstream finance, the digital lending sector has seen exponential growth as banks and NBFCs rapidly transition to digital lending in collaboration with fintech entities or on their own.

Estimates point to the digital lending market being worth $310 billion in 2023 and poised to cross $1.3 trillion by 2030, as about a third of actual lending happens through digital means. More importantly, given the small value and short-term nature of digital lending, it reaches a very high number of consumers. The fintech association’s recent data shows that in FY23, its members disbursed over 10 crore loans.

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India faces a unique challenge, with a significant number of citizens being more keypad-literate than language-literate. This rapid proliferation also has brought forth a slew of challenges for consumers including unsustainable credit, frauds, spams, and scams that erode consumer trust and raise regulatory concerns. The digital lending industry is increasingly taking take a proactive and transparent stance in addressing these issues, including promptly resolving the consumer grievances in acceptable time.

Digital transformative power comes with the responsibility to ensure consumer protection and financial literacy. After all, the fintech community in India did not wait for the regulators before they innovated various products. The digital lending industry must not wait for regulations alone to dictate its behaviour. Instead, it should embrace the principle of “what is good for others is good for me.”

Here is where the recently upgraded Code of Conduct (CoC) by the Fintech Association becomes significant for upholding these principles. This is not a top-down mandate, but a commitment of shared responsibility of the industry to universal values of customer protection. Rather than passively awaiting government policies and regulatory norms, the CoC shows clear intent to own the responsibility of better governance and self-regulating mechanisms to promote customer trust. The larger officialdom intent is to promote digital technologies for larger public good, and hence, any fintech solution that can address accountability, transparency, security, traceability, and governance scrutiny will stay for the long haul.

Emerging technologies will continue to reshape the Indian financial landscape, and will push not only regulatory frameworks to their limits but also test the governance and intent of industry stakeholders. Societal changes, evolving consumer needs, and the ever-advancing impact of technology on consumers will consistently challenge the elasticity of industry behaviour. This is where ‘moralsuation’ in self-regulation will help. It is the fusion of morality and evaluation, and is a dynamic process that emphasises the ethical dimension of industry self-governance. This goes beyond mere compliance with regulations and delves into the realm of ethical decision-making, ensuring that every action and policy adheres to a higher moral code. It elevates self-regulation from a mere box-ticking exercise to a profound commitment to upholding the values and principles that underpin a responsible and trustworthy industry.

Trust is what can make it happen. It stands as the foundational pillar upon which regulatory acceptance and consumer confidence in any industry are built. Trust is a binary concept, fragile in nature, and demands continual nurturing to prevent erosion. Without trust, regulations may be viewed as mere bureaucratic hurdles, and consumers could shy away from embracing digital financial services.

The RBI Governor’s recent call for self-regulating organisations (SROs) underscores the urgency of the matter. Digital lenders, as a community, should see SROs not just as regulatory watchdogs, but a step towards the industry embracing digital stewardship for the nation. A robust SRO tailored for digital lenders will primarily comprise members who represent the core digital lending industry across various consumer segments they serve. It is essential to avoid distractions from allied cohorts that may bring conflicts of interest. The true spirit of self-regulation transcends mere adherence to existing regulations; it demands a universal commitment to ethical conduct. This approach underscores that digital lenders, regardless of their size, scale, valuation, network, or influence, should have a voice in shaping industry conduct and bear the responsibility to abide by them.