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.

This has been issued especially keeping in mind the challenging macro-economic environment in the country, the association stated in its official release.

New code

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 behaviour 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.

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 an active focus on training of the employees in the organisations, the association maintained.

It further stated that 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.

Focus on SME

The association added that the DLAI members collectively serve more than 50 million borrowers in India. 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.

Increased demand

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.

The national lockdown has forced consumers to move to online channels which have resulted in increased adoption of digital lending products, a trend that is expected to accelerate over the coming months.

This will likely happen 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 the 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, the association mentioned.