ABSTRACT
The rapid expansion of digital lending in India reflects the convergence of financial services with digital public infrastructure and technology-driven innovation. Historically, limited access to formal credit due to documentation requirements, inadequate credit histories, and geographic barriers compelled underserved populations to rely on informal moneylenders. Over the past decade, policy initiatives such as the PMJDY, Aadhaar e-KYC, and the India Stack have significantly reduced transaction costs and enabled paperless, real-time financial services, catalysing the growth of app-based digital lending platforms. The sector expanded rapidly following demonetisation in 2016 and during the COVID-19 pandemic, with India’s digital lending market estimated to have grown from approximately USD 100 billion in 2019 to nearly USD 350 billion by 2023. This paper argues that the existing regulatory framework—largely composed of Reserve Bank of India master directions and sector-specific statutes—remains fragmented and inadequate to address the distinct risks posed by technology-driven credit delivery.
The paper further examines the increasing reliance on algorithmic credit assessment and alternative data analytics by FinTech platforms and regulated lenders. It critically evaluates whether the absence of mandatory transparency and explainability requirements undermines constitutional and statutory principles of fairness, non-discrimination, and reasonableness under Indian law, particularly in light of privacy jurisprudence and consumer protection norms.
Finally, the research advances the proposition that a dedicated statutory regime for digital lending is necessary to address these challenges. By analysing comparative regulatory approaches and recent Indian reforms, the paper argues that incorporating explainable artificial intelligence mandates and clearer allocation of responsibility among ecosystem participants would strengthen regulatory accountability and promote ethical lending practices. The study concludes that a technology-neutral yet activity-focused legislative framework is essential.
Keywords: Digital Lending; FinTech Regulation; Algorithmic Credit; Consumer Protection; Data Governance; RBI Guidelines; Explainable AI; Banking and Finance Law; Law and Technology
