Regulatory Lens on P2P Lending
What is P2P lending?
Borrowing from a bank or a non-Banking financial institution can be a challenging task because of regulatory constraints and the loan is rejected due to inadequate income, low credit score, etc.
Peer-to-peer lending can come in handy during such challenging times. P2P lending works as a mechanism through which people who want to lend money connect with those who need it (borrowers). It benefits the lenders since it gives them a higher interest rate than saving accounts.
All eyes on P2P lending!
Digital payments and digital lending platforms are platforms that facilitate direct or peer-to-peer lending between individuals. P2P startups are regulated by non-banking finance entities. RBI sent detailed questions to registered P2P lending start-ups between March and April this year. RBI has asked about details pertaining to the P2P platforms these are:
Partnership model with NBFCs
This will help RBI to check if the limits of lending by NBFC in cumulation with the P2P platform are met. RBI has increased the lending limit to ₹ 50 Lakhs, however, if the lending is above ₹ 10 Lakhs a certificate of practicing chartered accountant is required. Knowing about the partnership model helps RBI to analyze if overlending or Borrowing does not take place.
The flow of funds
When RBI demands the cash flows, it ensures that a proper balance is maintained between the Inflow and outflows, and the lenders and borrowers do not manipulate the thresholds. This is to ensure the loopholes are filled.
Risk sharing among partners
The NBFCs and such P2P platforms have a risk-sharing which makes the revenue model. The higher risk taker keeps the higher profit, earned in the form of spread from such lending transactions. RBI needs to have an eye on this since it has to ensure the risk-taking ability of the lenders (NBFC or P2P platform).
Looking forward, RBI is walking in the direction to make a P2P lending platform an independent service just similar to an NBFC, it will have separate regulatory requirements.
Going ahead, P2P lending platforms will exist independently and become a competition to NBFCs and similar lending institutions. The services of such platforms are quick and more user-friendly, giving them a scope to capture a considerable percentage of market share.
Imagine a situation where a need for ₹ 2 Lakhs arises all of a sudden, what would you prefer? Running to a bank, an NBFC, or opening an app on your phone and getting the loan credited to your bank account after completing some basic formalities?
This is the future of P2P and RBI is walking towards making such a future true!
Kautilya, IBS Mumbai.