Lending has been a business run by Money Lenders for more than 4000 years when lending transactions used to take place between Merchants, Farmers and Traders. Lending business has been back bone of the Banking and main stay for Banking system taking shape way back in 1472 AD. Banks act as an intermediary between depositors and borrowers, and in the process make money out of difference between interest payable and interest receivable.
The evolving FinTech system allows Peer-to-Peer (P2P) lending possible on online platform. This platform provides an opportunity to Investors as an asset class, in addition to existing asset classes like Mutual Funds, Stock Markets, Bullion, Commodities, Currency Trading and Fixed Deposits. With the advent of technology, the underlying processes of lending, payments, clearing and settlement have undergone paradigm shift. Equipped with consumer data, digital technology, automation and data analytics, these platform not only provide lucrative avenue to investors but also mitigate financial risks involved in the process.
P2P lending platforms of Faircent and iLend have been very popular across many western countries. It is also gaining popularity in India, and more & more retail borrowers and MSMEs are switching to online platforms to meet their finance requirements. New-age investors find it convenient to lend through online platform, thereby making it conducive to use best- suited investment option. For instance, lenders on Faircent platform get gross returns in the range of 18% to 26% per annum. Since it is in nascent stage in India, RBI has issued guidelines for exercising control and monitoring purpose. Let us have a look at these broad regulations:-
* No non-banking Institution other than a company shall undertake the business of P2P lending platform.
* Every company seeking registration with the Bank as an NBFC-P2P shall have net-worth of not less than Rs 2 crores or such higher amount the Bank may specify.
* NBFC-P2P shall maintain a leverage ration not exceeding 2.
* Aggregate exposure of lenders, across all P2Ps, shall not exceed Rs 10 lakhs.
* Aggregate loan taken by the borrowers, across all P2Ps, shall be subject to a cap of Rs 10 lakhs.
* The exposure of a lender to same borrower, across all P2Ps, shall not exceed Rs 50,000/-.
* The maturity of such loans shall not exceed 36 months.
* P2Ps shall obtain self-declaration from lender or borrower, as applicable, that the aforementioned limits are being adhered to.
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