Framework of Registration – P2P Lending Platform
What is Peer-to-Peer lending?
This is an effective way to get loans and financial help from others directly without involving any middlemen or financial intermediaries. This method has gained popularity lately as an alternative method of financing.
The other name for Peer-to-peer lending is ‘crowd lending’ or ‘social lending’. But this concept is comparatively new as its inception ranges back in the year 2005. This method has gained popularity as individual investors desire better returns on their cash savings in comparison to what a bank saving or CD offers.
What is an NBFC registration and P2P lending Registration?
An NBFC- P2P is actually a registered non-banking organization which is recognized by the RBI. It carries out its business of Peer-to-Peer lending in India.
1. Eligibility Criteria to Register as NBFC-P2P
No non-banking institution other than a company shall undertake the business of Peer to Peer Lending Platform. No NBFC-P2P shall commence or carry on the business of a Peer to Peer Lending Platform without obtaining a Certificate of Registration (hereinafter referred to as “CoR”) from the Bank. Provided that an entity carrying on the business of a Peer-to-Peer Lending Platform as on the effective date of these directions, can continue to do so, subject to the conditions
(i) Companies that are undertaking the business of Peer to Peer Lending Platform as on the date of effect of these directions i.e 4th Oct 2017, shall apply for registration as an NBFC-P2P to the Bank within 3 months from that date.
(ii) Such companies, which have applied to the Bank for registration as an NBFC – P2P, shall be permitted to continue the business of a Peer to Peer Lending Platform till their application for issuance of CoR is rejected, subject to such conditions, including winding down of business, as the Reserve Bank may impose.
(iii) Every company seeking registration with the Bank as an NBFC-P2P shall have a net owned fund of not less than rupees twenty million or such higher amount as the Bank may specify.
The various RBI directives to be kept in mind while lending money or borrowing money under Peer-to-Peer lending Registration
The RBI has laid down multiple directives that have to be kept in mind while lending as well as borrowing money. These are as follows:
- An investor needs to know the limit that he can invest across all available Peer-to-Peer lending platforms. At a given point of time, a lender cannot invest more than 10,00,000 lakh rupees.
- For a given borrower, a lender is only allowed to invest rupees 50,000 across all available Peer-to-Peer lending platforms.
- The borrower should keep in mind that at any given point in time, his borrowed amount should not exceed rupees 10,00,000 lakhs across all available Peer-to-Peer lending platforms.
- The total duration of maturity of the loan should not exceed 36 months.
2. Process of Registration
- Make an application– Every existing and prospective NBFC-P2P shall make an application for registration to the Department of Non-Banking Regulation, Mumbai of the Bank, in the form which will be specified by the Bank for the purpose. Existing NBFC-P2Ps shall apply within three months from the issuance of these Directions dated 4th Oct 2017.
- Condition to be fulfilled : The Bank, for the purpose of considering the application for registration, shall require the following conditions, among others, to be fulfilled:
a. The company is incorporated in India
b. The company has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants;
c. The company has the adequate capital structure to undertake the business of Peer to Peer Lending Platform;
d. The promoters and the Directors of the company are fit and proper;
e. The general character of the management of the company is not prejudicial to the public interest;
f. The company has submitted a plan for, or implemented, a robust and secure Information Technology system;
g. The company has submitted a viable business plan for conducting the business of Peer to Peer Lending Platform;
h. Public interest shall be served by the grant of CoR;
i. Any other condition as may be specified by the Bank, fulfillment of which, in the opinion of the Bank, is necessary to ensure that the commencement of or carrying on the business in India shall not be prejudicial to the public interest.
In case of prospective NBFC-P2Ps
(iii) Principle approval :-The Bank may, after being satisfied that the conditions specifiedare fulfilled, grant in-principle approval for setting up of a Peer to Peer Lending Platform, subject to such conditions which it may consider fit to impose.
(iv) validity of the in-principle approval :- The validity of the in-principle approval issued by the Bank will be twelve months from the date of granting such in-principle approval.
(v) Terms of grant of in-principle approval:-Within the period of twelve months, the company shall put in place the technology platform, enter into all other legal documentations required and report position of compliance with the terms of grant of in-principle approval to the Bank.
(vi) Grant a CoR as an NBFC–P2P :- The Bank may, after being satisfied that the entity is ready to commence operations, grant a CoR as an NBFC–P2P, subject to conditions as deemed fit by the Bank.
In case of existing NBFC-P2Ps
(vii)Application:- Companies that are undertaking the business of Peer to Peer Lending Platform, as on the date of effect of these directions dated 4th Oct, 2017, shall apply for registration as an NBFC-P2P to the Bank within 3 months from that date. Such companies, which have applied to the Bank for registration as an NBFC – P2P, shall be permitted to continue the business of a Peer to Peer Lending Platform till their application for issuance of CoR is rejected, subject to such conditions, including winding down of business, as the Reserve Bank may impose.
(viii) Cancellation Of CoR Granted :-The Bank may cancel the CoR granted to an NBFC-P2P, if such company –
- ceases to carry on the business of Peer to Peer Lending Platform in India; or
- has failed to comply with any condition subject to which the CoR has been issued to it; or
- is no longer eligible to hold the CoR; or
- at any time fails to fulfill any of the conditions referred to in paragraphs 5(2)(ii) and 5(2)(v); or
- fails to –
(i) comply with any Direction issued by the Bank; or
(ii) maintain accounts, publish and disclose its financial position in accordance with the requirements of any law or any Direction or order issued by the Bank; or
(iii) submit or offer for inspection its books of account or other relevant documents when so demanded by the Bank.
What are the various benefits enjoyed by an NBFC- Peer-to-Peer lending Registration?
The various benefits of being an NBFC-Peer-to-Peer are as follows-
- An NBFC- Peer-to-Peer would become a member of all Credit Information Companies (CICs) that would be required to submit data to them regularly within specified intervals every month. This would thus result in recording all borrower payment details.
Advantages offered by Peer-to-Peer lending registration for both Borrowers and Lenders:
#1. The loans here are available without the borrower having to provide any mortgages. On the other hand, the borrower has to provide for a mortgage in case of getting a loan approved from any other financial institution or bank.
#2. NBFCs actually provide a seamless platform for interaction of both the buyer as well as the lender.
#3. This method is actually ideal for the under-banked population (i.e. the ones with zero credit score and history)
#4. The borrowers actually get loans at a lower rate of interest in comparison to credit cards.
#5. One can easily get his returns multiplied in a short period of time if his returns are re-invested.
#6. One tends to receive a higher rate of interest (as a lender) in comparison to the returns one expects from shares or mutual funds.
#7. This platform helps in diversifying the lender’s risk, allowing them to reinvest their earnings across new loans ultimately spreading your investment and managing the overall risk.
It was rightly said by Ralph Waldo Emerson– “Every Wall is a Door”
Thus, take a step forward to open the door for the new FDI norms.
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