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FLDG is Not Dead – It’s Evolving: A Founder-VC View on the New Guardrails By Appalla Saikiran, Founder & CEO, SCOPE
- The First Loss Default Guarantee (FLDG) model in the Indian fintech industry is evolving with tighter guardrails and increased legitimacy.
- FLDG persists despite regulatory scrutiny, now requiring explicit guarantees, proper backing, and transparent reporting.
- The model facilitates financial inclusion by allowing fintechs to share credit risk, benefiting underserved segments like micro-entrepreneurs and rural MSMEs.
- Regulations aim to formalize FLDG structures, ensuring capped guarantees, sound accounting, and lender evaluation of fintechs' financial health.
- This evolution, termed 'FLDG 2.0,' offers increased accountability, compliance, and scalability for sustainable credit provision.
- Fintechs must innovate within boundaries, developing internal credit models and collaborating with lenders to craft logical risk-sharing arrangements.
- VCs benefit from lowered compliance uncertainty and improved alignment with banking standards under the new FLDG regulations.
- The regulatory clarity fosters new VC-backed experimentation and sustainable partnerships between founders and financiers.
- FLDG's transformation from a shadowy practice to a legitimate tool signifies progress towards a sound credit infrastructure in India.
- The regulations provide a blueprint for scalable, responsible innovation in credit inclusion, strengthening the industry's mission.
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