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Opinion
Andy Mukherjee

India Aims to Copy China, But Not In Lending-by-App Craze

The RBI wants digital loans to be less predatory and for credit risk to remain with regulated institutions.

Paytm Digital Payment In India
Photographer: NurPhoto/NurPhoto

There’s a lot about Beijing’s decades-long infrastructure push and investment-led growth that India wants to emulate. But when it comes to the consumer economy, aping China’s out-of-control digital lending boom is strictly off the policy agenda. The Reserve Bank of India’s recently released guidelines for app-based loans show a clear desire to rein in the industry after its pandemic-era excesses.

The RBI wants to strike a better balance between the ability of digital lending to democratize credit and its potential to suck people into a debt trap. The typical fixed cost of originating, servicing and collecting a loan is 5,000 rupees ($60) for banks; for online platforms it’s a few hundred rupees, according to industry sources. As mobile internet becomes all-pervasive, apps can hawk small-ticket credit across the large country more efficiently than traditional lenders. That helps explain the eightfold expansion in loans disbursed by the homegrown Paytm in just the past year.