FLDG is a lending model between a fintech and a regulated entity, in which a third party guarantees to compensate up to a certain percentage of default in a loan portfolio of the regulated entities.
Under these agreements, the fintech originates a loan and promises to compensate the partners up to a pre-decided percentage in case customers fail to repay. The bank/NBFC partners lend through the fintech.
FLDG helps expand the customer base of traditional lenders but relies on the fintech's underwriting capabilities. NBFCs have almost paused tie-ups with fintech players under the FLDG structure for lending in the absence of clarity on contractual agreements from the RBI.
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