What are Lending Service Providers (LSPs)?

About Lending Service Providers (LSPs)

• LSPs are engaged by the Regulated Entities (REs) (banks or NBFCs) to carry out some functions of RE in connection with lenders’ functions on digital platforms.
• The LSPs generally, under an outsourcing arrangement, offer their services to REs for a fee or commission.
• RBI defines an LSP as an agent of an RE that carries out one or more functions of the lender, including customer acquisition, underwriting support, pricing support, disbursement, servicing, monitoring, collection, and loan recovery on behalf of the RE.
• In simple terms, LSPs are loan aggregators which provide loans from their partner REs.
• In some cases, a RE can also act as an LSP.
• They are technology-centric entities which have the client reach and are thus capable of offering a marketplace for both lenders and borrowers.

LSPs entail aggregation of loan offers from multiple lenders on an electronic platform, which enables the borrowers to compare and choose the best available option to avail a loan from one of the available lenders.

Q1: What is a Non-Banking Financial Company (NBFC)?

An NBFC is a company registered under the Companies Act 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature. They offer various banking services but do not have a banking license. They provide banking services like loans, credit facilities, TFCs, retirement planning, investing and stocking in the money market. Generally, these institutions are not allowed to take traditional demand deposits—readily available funds, such as those in checking or savings accounts—from the public. NBFCs are regulated by the Reserve Bank of India (RBI), the central bank of India.

Source: RBI releases draft regulation for web aggregation of loan products in digital lending