Alternative Lending in a Digital Age: A Comparative Case Study in Regulation Across India and the United States

Abstract

We study alternative lending in two countries, India and The United States of America and highlight its potential in promoting financial inclusion as well as the consumer risks introduced by storing and processing of personal data for lending decisions. The comparative analysis shows that while consumer protection concerns with digital lending platforms across two contexts might be similar, they are weighted against perceived benefits differently. Ultimately, regulatory jurisdictions can adopt contrasting approaches to an emerging technological intervention, in pursuit of the same goal.
In our analysis of digital lending in India, a country that has encouraged digital lending based on alternative data, we find that the narrative of the sector promoting financial inclusion is complicated. Fintech lenders partake in self-serving practices such as not reporting responsible borrowers to credit bureaus- a legal violation that has little to no consequences when regulatory enforcement capacity is weak. Ultimately, alternative lending can mirror the existing tiered credit access regime of informal and formal lending markets. We propose three avenues where clarification of existing Indian regulation that can uphold consumer interest in digital lending, and move the sector closer to the goals of financial inclusion.

Keywords: financial inclusion, digital lending, alternative lending, credit risk assessment