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RBI Prohibits Default Loss Guarantee for NBFC-P2P Loans: Fintech Startups Affected



The Reserve Bank of India (RBI) has stated that default loss guarantee (DLG) is not allowed for loans arranged on NBFC-P2P platforms, as per the guidelines on DLG in digital lending issued in June 2023. These guidelines require that the total DLG cover on any outstanding portfolio specified upfront should not exceed 5% of the loan portfolio amount.

This clarification is expected to impact several fintech startups in the peer-to-peer lending space, including Lendbox, LiquiLoans, Faircent, and LendenClub, which were using affiliates such as Uni and MobiKwik for DLG purposes.

DLG is described by the RBI as a contractual arrangement between a regulated entity and an eligible entity, under which the latter promises a certain percentage of the loan portfolio to the regulated entity for a loss due to default. Any other implicit guarantee of a similar nature linked to the performance of the loan portfolio of the regulated entity, and specified upfront, shall also be covered under the definition of DLG.

This move is part of the RBI's broader efforts to tighten regulations around fintech startups. Earlier this month, the central bank released draft guidelines on Know Your Customer (KYC) for payment aggregators, which is expected to have a significant impact on micro and small-scale businesses, as well as solopreneurs.

The regulations require medium merchants to undergo Customer Profile Verification (CPV) and obtain and verify Officially Valid Documents (OVDs) of the proprietor/beneficial owner/person holding attorney and the business.

Additionally, all non-bank payment aggregators are required to register themselves with the Financial Intelligence Unit-India (FIU-IND) by September 30, 2025.

Earlier this year, the RBI took action against Paytm, although the firm has received permission from the National Payments Corporation of India (NPCI) to participate in UPI through the Third-Party Application Provider (TPAP) under the multibank model, as per the fintech company’s filings on the exchange.

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