Peer-to-peer lending to come under RBI purview

The Reserve Bank of India (RBI) has released a consultation paper on peer-to-peer (P2P) lending and proposed to bring such platforms under its purview by defining them as non-banking finance companies (NBFCs).

What is P2P lending?

P2P lending is a form of crowdfunding; an online platform that matches lenders with borrowers in order to provide unsecured loans. The borrower can either be an individual or a business requiring a loan. A fee is paid to the platform by both the lender and the borrower.

RBI’s proposal:

• The central bank has proposed a minimum capital requirement of Rs 2 crore, and wants players not to offer any extraordinary returns.
•  The borrower can either be an individual or a business requiring a loan. A fee is paid to the platform by both the lender and the borrower.
•  The RBI has also stated that P2P lenders could act only as an intermediary, wherein none of the lending/borrowing gets reflected in their balance sheets.
• It has also been proposed to make it mandatory for transfer of funds to take place directly from the lender’s bank account to that of the borrower.
•  The central bank also said confidentiality of customer data and data security would be the responsibility of the platform.

Why P2P regulation is necessary?

Although nascent in India and not significant in value yet, the potential benefits that P2P lending promises to various stakeholders and its associated risks to the financial system are too important to be ignored. Coming under the purview of the RBI will not only be a confidence booster for the sector, but also for individual lenders.

Present scenario:

According to the data released by Peer to Peer Finance Association, the cumulative lending through P2P platforms globally, at the end of Q4 of 2015, had reached 4.4 billion pounds. In India, P2P lending platforms are largely technology companies registered under the Companies Act.