Govt of India has introduced a notification that intends to regulate all peer-to-peer (P2P) lending platforms by the Reserve Bank of India(RBI).
The executive director at RBI, Sudarshan Sen had said at a recent conference in Mumbai that the regulator was waiting for a gazetted notification from the Government of India. The notification will specify that the P2P loan platforms will fall under the purview of RBI’s regulation. In the report from the Press Trust of India, RBI wants the Government to issue a declaration – stating P2P platform as an entity that has to be regulated by the RBI.
The notification further gave P2P loan platforms a status of non-banking financial company (NBFC). This notification acts to set the right environment for the norms that will be released by RBI. These norms that are released will regulate P2P lending platform in India.
RBI has floated a consultation paper on the lending platform. Following are some insights that businesses may gather from the same:
P2P Lending is a type of crowd-funding for raising loans – one that can be paid back with interest. It uses an online platform for matching a lender and a borrower. All this is to avail unsecured loans.
2: The Type of Fees to be Paid
Now coming to the interest rate – which is either fixed by the platform or it might be mutually agreed between the lenders and the borrowers. The borrower is either an individual or a legal person who requires a loan.
Furthermore, the lender and the borrower has to pay a fee to the platform. An origination fee is also paid by the borrower. This fee is charged as a flat rate or as a percentage of the loan amount raised. This is dependent upon the category of risk that is involved.
3: No Significant Value Attached
It is important to note that the benefits to the various stakeholders (borrowers, lenders and agencies) and the risks associated with this type of lending are significant and cannot be ignored any further. As of now, the concept of NBFC P2P lending is nascent in nature and yet to attain a significant value.
4: Disruption Caused
RBI favors P2P lending entities in the above consultation paper. RBI even finds potential in the above sector as it can disrupt the financial sector and is expected to throw up surprises.
5: Acts as an Alternate Lending Channel
An acknowledgement of this lending platform as an alternate lending channel is what RBI wants.
6: Official Recognition of the Platform
Through the notification mentioned above, RBI also states that P2P lenders will not only be officially recognized but also becomes useful not only raise further fund-raising options but business expansion too.
7: Advantages of P2P Lending
The traditional form of finance will not be able to reach out in many occasions. The alternate option is provided by P2P lending. The advantage of this type of lending are lower operational costs and higher levels of competition with the traditional types of lending channels. So, it can offer a softer lending rate.
It was rightly said by Charles Dickens -“A very little key will open a very heavy door.”
Thus, take the first step to open the door for this type of lending.
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