About First Loss Default Guarantee (FLDG):

• What is it? FLDG is a lending model between fintech firms and their partner banks and non-banking finance companies where the initial hit on a default is taken by the fintech firm that originated the loan.
• 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 but from their books.
• Advantages:
  • FLDG helps expand the customer base of traditional lenders but relies on the fintech’s underwriting capabilities.
  • It will also rationalise the existing prudential norms to implement resolution plans in respect of exposures affected by natural calamities.

What is FinTech?

• Fintech, a combination of the terms “financial” and “technology,” is the application of new technological advancements to products and services in the financial industry. 
• It refers to the application of software and hardware to financial services and processes, making them faster, easier to use and more secure.
• The fintech industry includes everything from payment processing solutions to mobile banking apps.
• Some examples include mobile banking, peer-to-peer payment services, automated portfolio managers or trading platforms.