FinAxis® First Loss Default Guarantee (FLDG)

We help design robust FLDG structures that reduce default risk, enhance investor confidence, and enable responsible credit growth.

What Is First Loss Default Guarantee (FLDG)?

First Loss Default Guarantee (FLDG) is a structured risk-sharing framework used by NBFCs, banks, and fintechs to mitigate credit risk in loan portfolios. Under this arrangement, a third party—typically a fintech partner, corporate guarantor, or sponsor—absorbs a predefined portion of losses arising from borrower defaults.

FLDG enables lenders to expand credit responsibly while maintaining portfolio quality, capital efficiency, and investor confidence.

Why FLDG Matters in the Indian Lending Ecosystem

In a rapidly evolving fintech and NBFC environment, FLDG plays a critical role by:

  • Reducing early-stage portfolio risk
  • Supporting new borrower segments
  • Enabling data-driven underwriting models
  • Enhancing lender confidence and scalability
  • Supporting responsible credit expansion

At FinAxis®, we design FLDG structures that balance risk, compliance, and growth.

How FLDG Benefits Stakeholders

For NBFCs & Banks

  • Lower credit risk exposure
  • Faster portfolio scaling
  • Improved investor & board confidence
  • Enhanced credit expansion into new segments

For Fintechs & Originators

  • Stronger lender partnerships
  • Access to larger credit lines
  • Alignment with risk performance
  • Improved market credibility

For Investors

  • Reduced downside risk
  • Improved portfolio predictability
  • Enhanced governance visibility

Compliance & Regulatory Considerations

FinAxis designs FLDG structures in line with evolving RBI guidelines, ensuring:

  • Proper risk disclosure
  • Transparent contractual frameworks
  • Clearly capped guarantees
  • No misrepresentation as insurance
  • Strong governance and audit trails

Our advisory ensures FLDG is implemented as a risk-sharing mechanism, not a regulatory workaround.

Why Choose FinAxis® for FLDG Advisory

  • Deep fintech & NBFC domain expertise
  • RBI-aligned structuring approach
  • Risk-first, growth-enabled design
  • Transparent documentation & governance
  • End-to-end advisory support

Contact us to learn more about our FLDG services and how we can help your business thrive. Whether you're a mid-sized company or a growing enterprise, FinAxis® delivers solutions tailored to your industry.

Key Features of FLDG Structures

Defined Risk Coverage

Coverage is limited to a predetermined percentage of the portfolio, ensuring controlled exposure.

Third-Party Risk Sharing

Fintech partners or guarantors assume first-loss responsibility up to an agreed threshold.

Capital Efficiency for Lenders

Reduced loss exposure helps optimize capital deployment and ROA.

Portfolio Performance Alignment

Encourages stronger underwriting and monitoring from all stakeholders.

Transparent Triggers & Settlement Mechanisms

Clearly defined default triggers, loss recognition, and payout timelines.

FLDG Advisory & Services We Offer

Risk Mitigation

Risk mitigation involves strategies and techniques to minimize potential losses in investment portfolios. This includes diversification, hedging, and the use of financial instruments to protect against adverse market movements.

Regulatory Framework

Transparency in financial markets refers to the extent to which investors have access to relevant information about financial products and services. This includes clear disclosure of fees, risks, and performance data, enabling investors to make informed decisions.

Transparency

Transparency in financial markets refers to the extent to which investors have access to relevant information about financial products and services. This includes clear disclosure of fees, risks, and performance data, enabling investors to make informed decisions.

Credit Enhancement

Credit enhancement refers to various strategies and techniques used to improve the creditworthiness of a borrower or a financial instrument. This can include the use of guarantees, insurance, or other forms of credit support to reduce the risk of default and make it easier for borrowers to access financing.

How FLDG (First Loss Default Guarantee) Works

Initial Consultation

Understand your lending structure, risk appetite, and investor requirements.

Documentation Collection

We assist in collecting borrower and partner data required for portfolio analysis.

Application Submission

Submit your FLDG partnership proposal for legal and compliance review.

Approval Process

Our team helps finalize the agreement and define the guarantee coverage percentage.

Funds Disbursement

Guarantee funds or reserve amounts are allocated as per the FLDG agreement.

Ongoing Support

Continuous review of portfolio performance and risk-reduction strategies.

FLDG (First Loss Default Guarantee) FAQs

FLDG is a risk-sharing arrangement where a guarantor agrees to absorb initial losses in a loan portfolio, enhancing credit confidence for lenders.
FLDG structures are commonly used by NBFCs, fintech lenders, digital platforms, and financial institutions to manage credit risk and improve lending efficiency.
FLDG improves capital efficiency, reduces credit risk exposure, and supports faster portfolio growth by sharing initial default losses.
FLDG structures are designed in alignment with applicable RBI regulations and risk management frameworks, ensuring transparency and regulatory compliance.
The guarantor covers losses up to a predefined percentage of the portfolio, after which the remaining risk is borne by the lender as per the agreed structure.
Key factors include portfolio quality, default probability, risk appetite, regulatory requirements, and capital efficiency objectives.
FinAxis® designs transparent, compliant FLDG structures tailored to lender objectives, ensuring balanced risk-sharing and long-term portfolio stability.

Need FLDG for Your NBFC or Fintech?

Get compliant, risk-balanced FLDG structuring that strengthens your lending operations and investor confidence.

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