P2P lending is a debt - financing model which allows individuals and businesses to borrow money online, without relying on an official financial institution as an intermediary. In order to avail the service, borrowers are required to pay a fixed origination fee, while lenders often have to pay an administration fee, depending on the terms of the P2P lending platform. The interest rates are usually determined by the platform, sometimes the rates are set as per mutual agreement between the lender and the borrower. Peer - to - peer lending companies are for - profit organisations that generate revenue from fees paid by borrowers and lenders. By eliminating the need for intermediaries, social lending platforms manage to offer high returns on investments as well as low - interest rates for borrowers, irrespective of market conditions.
Currently worth $ 3.2 mn (INR 20 cr), the country’s peer - to - peer lending industry is projected to increase to around $ 4 bn - $ 5 bn by 2023.
India currently has about 30 online P2P lending platforms. Some of these are Faircent, i2ifunding, Lendbox etc. In 2018, as many as 11 P2P players received the RBI licence to operate as an NBFC - P2P company. RBI in its master directions has defined NBFC - P2P as a non - banking institution which carries on the business of a peer - to - peer lending platform. The estimated P2P lending to be generated in India over the next 5 years is pegged at around $ 4 bn. Whereas in China, the P2P lending book currently is around $ 100 bn.
Norms for NBFC - P2P Registration and Operations
• A Certificate of Registration from Reserve Bank of India is needed to conduct P2P lending business
• Only Indian companies registered under Companies Act 2013 with a net worth of INR 2 crore can apply
• It should have a secure Tech platform
• Such a company would be considered an NBFC (Non-Banking Finance Company)
• A company can get an in-principle approval valid for 12 months, and once the secure technology platform is ready, they can apply for a Certificate of Registration
• This company cannot lend or hold funds on its balance sheet. Further, no cross-selling is allowed on the website, except loan specific insurance products
• The company shall have to conduct due diligence on all participants
• With consent, the company should have access to credit information for the participants
• No Lender can lend more than INR 10 lakhs
• No borrower can borrow more than INR 10 lakhs
• No borrower can borrow more than INR 50,000 from any one lender
• The company has to obtain a certificate from each participant that says they are in compliance with these requirements
• The company shall remain liable for actions of recovery agents and others
• The lending shall not be direct, but through two escrow accounts, one for lenders and one for borrowers
• The loan period shall not be more than three years
• No international parties shall be involved
• No secured lending will be facilitated