Definition
First Loss Default Guarantee (FLDG)
FLDG is an arrangement where a lending partner, like a fintech, agrees to absorb initial losses on a loan portfolio up to a capped percentage, sharing credit risk with the lender.
In a First Loss Default Guarantee (FLDG), a lending service provider or fintech that sources borrowers agrees to cover the first slice of defaults in a loan pool, up to a cap, protecting the regulated lender (bank/NBFC) from initial losses.
RBI has formalised FLDG under its default loss guarantee (DLG) rules, capping the guarantee at a percentage of the portfolio and requiring transparency, so fintechs cannot take unlimited hidden risk or effectively lend without a licence.
FLDG aligns incentives — the partner has skin in the game on credit quality — but the regulated lender remains accountable for the loans and must follow prudential norms.
Related terms
- Buy Now Pay Later (BNPL)Buy Now Pay Later is a short-term financing option at checkout that lets you receive goods immediately and pay later, either in one deferred payment or in instalments.
- Digital Lending GuidelinesRBI's Digital Lending Guidelines are rules that govern app- and platform-based lending in India to ensure transparency, fair practices and protection of borrowers' data.
- P2P LendingPeer-to-peer lending is an RBI-regulated model where individuals lend directly to other individuals through an NBFC-P2P platform, which matches lenders and borrowers.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.