Product governance refers to a lender’s systems, procedures and controls in place to design, approve, distribute and assess financial products. In digital credit, product governance frameworks aim to ensure that loans are suitable, i.e., meet actual consumer needs, objectives, and constraints. This means essentially that a financial product is effectively designed to produce positive customer outcomes. The suitability standard requires FSPs to assess customers carefully and offer only financial products that are affordable, fit for purpose, and adequately understood. They should have controls in place to check whether the credit product or service is operating as intended, and to take action accordingly. Perhaps the best example of this approach is the UK FCA’s policy on “Treating Customers Fairly.”1
The corollary of product suitability for the customer is responsible lending by the provider. The EU’s Consumer Credit Directive provides a clear definition of this. Lenders should not act solely in their own interests but should also take into account the borrowers’ interests and needs, and reduce foreseeable risks of harm to borrowers. Providers thus have a duty not only to assess the suitability of a product but also to assess the borrower's creditworthiness, including whether the borrower is likely to be able to repay without incurring substantial financial harm. The lender has an obligation to detect any payment difficulties as early as possible, engage with consumers to identify the causes and provide the necessary information, and help the borrower to address temporary financial difficulties through forbearance measures.2
Recommendation: Product governance helps embed good customer outcomes ex ante in the FSP’s incentives, rules, and practices. These governance components, backed up by internal control systems within firms, help ensure suitability, requiring financial advice and offerings to reflect hard information on target segments and delivery channels. This approach avoids the need for regulators to prescribe specific terms for each type of digital credit product. Guidance may be issued to clarify that lenders must have effective processes for design, testing, review (including customer feedback), and approval of digital credit products and services before they are offered to the public at large. As a principles-based approach, this demands greater effort by lenders and supervisors than the more formalistic rule-based approach traditionally used.
Source: Izaguirre et al. 2025 forthcoming [link]
Country examples of responsible lending guidelines
enacted responsible lending obligations along with specific standards for small-amount credit contracts (SACCs). These include a presumption of unsuitability if either the consumer is in default under another SACC or the consumer has had two or more other SACCs in the previous 90 days. In addition, in order to verify the financial situation of the consumer, lenders are also required to review 90 days of bank statements for account(s) into which the consumer's income is paid. For consumers who receive at least half their income in government benefits, not more than 20% of their gross income can be used for the purposes of repayments under small amount credit contracts.1
imposes detailed ceilings on lending and debt service based on ability to pay. Licensed institutions may not extend unsecured credit to any individual with an annual income under SGD 20,000 (USD 15,000) and are subject to credit restrictions based on age and income level. The Monetary Authority applies a Total Debt Servicing Ratio to FIs’ personal lending. Moneylenders (analogue and digital) are more restricted. Credit caps on MLs are tied to annual income – loans up to SGD 3,000 (US $2,200) for borrowers with income under SGD 20,000; for those with income over SGD 20,000, loans up to six times monthly income.1
