Peer-to-peer lending (P2P lending) is an enhanced way of lending money to individuals or businesses via online services that connect lenders and borrowers. It is one of the most cutting-edge financial products in new age investment.
P2P lending companies have lower costs of doing business and charge less for their services than traditional financial institutions. As a result, it contributes to the creation of a new asset class for lenders, allowing them to earn higher returns than other asset classes, while borrowers can borrow money at lower interest rates.
The Rise of the P2P Investment Industry
In February 2005, the first peer-to-peer (P2P) lending company was established in the United Kingdom. It gradually gained popularity throughout Europe, the United States, and other parts of the world.
The P2P industry in India is flourishing thanks to the prompt and proactive action of the Reserve Bank of India in establishing regulatory guidelines. To safeguard the interests of participants, it became mandatory for all P2P entities in October 2017 to obtain a NBFC P2P License.
P2P lending has improved in transparency, stability, awareness, and credibility as a result of the industry being covered by a regulatory framework.
In India, the P2P lending industry has a promising future. P2P lending is expected to grow to $10.5 billion by 2026, with a compound annual growth rate (CAGR) of 21.6%.
Let’s take a look at the P2P- NBFC Regulations?
The Reserve Bank of India (RBI) has been taking measures to regulate the rapidly expanding Peer-to-Peer (P2P) lending industry. These rules include some of the following:
Have Net Owned Funds of at least Rs. 2 Crores or higher as RBI may specify time to time.
Act as an intermediary providing an online marketplace or platform to participants involved in P2P lending.
Not raise deposits as defined by or under Section 45I(bb) of the Act or the Companies Act, 2013.
Not lend on its own.
Not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans; or such funds as stipulated in paragraph 9.
Not cross-sell products except for loan-specific insurance products.
Not permit international flow of funds.
P2P - NBFC PLATFORM RESPONSIBILITIES
- Conduct proper research on the participants.
- Conduct credit and risk profiling on borrowers and disclose the results to prospective lenders.
- Prepare loan agreements and other necessary paper work.
- Provide assistance with loan disbursement and repayment of loan amount.
- Provide services for the recovery of loans formed on the platform.