RBI's hygiene step to bring much-needed clarity to FLDG arrangements

Mint Road has pulled the plug on clever financial arrangements between regulated entities and fintechs, with stress on skin in the game

V  Raman Kumar, founder and chairman of CASHe, a digital credit platform for millennials, never tires of reminding anyone who cares to listen that his firm never got the valuations that fintechs typically command, because he was not clever enough. “But being clever can’t be a business model.” It’s like chugging along on someone else’s rails for an easy ride.  

Last week, the Reserve Bank of India (RBI) drove home this point when it said that first-loss default guarantees (FLDGs) — financial buffers offered by unregulated fintechs to regulated entities (REs) against defaults on loans originated by the former —