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In the lending space, both private & public lenders face risks when it comes to the money being lent or borrowed; the most common of which is a loss. The principal amount may be defaulted upon, or circumstances may arise where the interest payments are not paid. All of these directly affect the lending business monetarily, and indirectly affect their reputable branding amongst other lenders & investors as an operation that is unreliable. 

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Particularly more so following the global financial crisis, conventional sources of funding and lending are suffering severe capital limitations. Simultaneously, the need for capital has increased dramatically. This is not ideal and something that every business takes adequate measures against. One such safety net is called First Loss Debt Guarantee (FLDG).

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FLDG is a system established in which a third party compensates lenders and lending business in the event of a payments-default by the borrower. Due to the mechanism of involving a third party entity in the lending cycle, it reduces the burden of defaulted debt collections on the lender. The third party compensates for the losses, which in turn encourages lenders to continue providing loans. This measure serves as insurance against lending cycle loss for all parties involved and is used by the government so that banks and lend-tech establishments do not turn away any lending opportunities.

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The FLDG initiative assists to continue pushing money into the hands of borrowers with necessity, who would otherwise be unable to access any other funds. They also contribute to increased liquidity, which potentially acts as a risk mitigator for debt mutual fund investors. The government, on the other hand, doesn’t need to get involved directly - therefore saving resources only for when the borrower defaults and the chances of recovery are slim. 

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This is the perfect win-win situation, boosting confidence in the lenders, as well as borrowers, to keep the cash-flow going in the country’s economy!

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