Peer to Peer (P2P) Lending in India
You may have heard about the buzzword “P2P Lending” recently within the financial technology & BFSI segment. To bust the myth, here we have compiled all you need to know about Peer to Peer (P2P) Lending in India, its origin, global perspective, regulations & related developments.
P2P lending process
P2P lending refers to an activity of lending money to individuals through digital marketplaces who connect borrowers with lenders. On one hand, borrowers are people who are looking out for unsecured loans while on the other, lenders are people who fund the requirements for earning the desired interest rate. And this transaction as well as the matchmaking between lenders & borrowers is facilitated by the P2P lending platform.
Key Facts –
The interest rate on the platform may either be set by the lenders who compete for the lowest rate (reverse auction model) or fixed by the platform based on the risk assessment. The risk of default on the payments is covered by the lender by choosing the right borrower profile & by diversifying funds across multiple borrowers.
However in case of P2P lending, there is no market volatility like in stock markets and investments here are less liquid as compared to stocks.
Also the tax treatment for P2P lending in India is straightforward, the money you earn as interest in a financial year is considered as an additional income. You pay income tax in-line with your tax slab.
Origin of P2P lending in India
P2P lending in India is fairly nascent with few players like Faircent starting off in 2013. Since then, the sector has seen interests from multiple starts with as many 30 active players in 2016. Most of the startups worked as tech platforms connecting lenders with borrowers for mutual benefit.
In 2017, Reserve Bank of India came up with the first final set of guidelines for regulating the sector. Since then, there have been around 20 active platforms who have been ramping up operations to gain market share.
Some key advantages of P2P lending are as follows –
- The cost of funds & operational costs for P2P loans can be lower as compared to loans from traditional financial institutions like banks. Therefore, P2P lending firms can reach a wider segment of credit invisible’s in India.
- Lenders may earn a higher return on their investment as compared to other options. The returns are credited monthly which can be lucrative for investors in India.
- For people looking out for financing certain social requirements, P2P loans can provide a much more formal way to lending a helping hand for example through medical loans, educational loans etc.
The concept of P2P lending kicked off in United Kingdom around 2005 with couple of startups offering small business loans by connecting them to investors via their platform. Gradually, the concept picked up in US, parts of Europe and Asia.
Founded in 2005, Zopa is the first peer to peer lending company which has recently scaled itself to become a formal bank.
Here you can have a quick glance of a country wise list of P2P lending companies –
|Korea||16||Money Auction 2006|
|Korea||17||Pop Funding 2007|
|Korea||23||148 p2p companies|
Regulations for P2P lending in India
The P2P lending sector in India is regulated by RBI. You may check the detailed guidelines from Reserve Bank of India updated as on 22nd November 2019 here.
P2P Lending Regulatory Guidelines –
- Company seeking to start P2P lending must be incorporated in India
- A P2P lending company needs to obtain a NBFC-P2P license (CoR – Certificate of registration) from RBI
- P2P lending company acts as an intermediary who facilitates loans via an online platform or otherwise
- The company must have net owned fund of at-least Rs 2 Crore
- P2P lending company cannot take deposits
- P2P lending company cannot lend on its own
- Cannot cross sell any products except loan related insurance
- To store & process all data on a server in India
- Should not allow flow of international funds
Key norms to be followed while execution
- The total exposure of a lender across all P2P lending platforms cannot exceed Rs 50 Lacs
- The total loan amount for a borrower from all P2P lending platforms aggregated should not exceed Rs 50 lacs.
- Maximum exposure of single lender to a borrower across P2P lending platforms to not exceed Rs 50000.
- Loan tenure cannot be higher than 36 months
- Fund transfer on P2P lending platform is via an escrow account operated by a Trustee
- At least 2 escrow accounts have to be maintained – one for receiving funds from the lender till disbursal and other on for money collected from the borrower
- P2P lending company needs to become the member of all Credit information companies and furnish monthly credit information
Recent Developments for P2P lending in India
The RBI recently published the list of all the registered P2P lending platforms in India.
You may download the details from RBI website here. Once you visit the page, click on – List of NBFC- Peer to Peer (P2P) registered with RBI (As on October 31, 2019).
As on Oct 31st 2019, there are 20 active platforms licensed by RBI.
|S No||Name of the Company|
|1||Etyacol Technologies Private Limited|
|2||Micrograam Marketplace Private Limited|
|3||Rang De P2P Financial Services Private Limited|
|4||Monexo Fintech Private Limited|
|5||Dipamkara Web Ventures Private Limited|
|6||Fincsquare Fintech Private Limited|
|7||Luharia Technologies Pvt Ltd|
|8||SRS Fintechlabs Private Limited|
|9||RNVP Technology Private Limited|
|10||Bigwin Infotech Private Limited|
|11||Bridge Fintech Solutions Private Limited|
|12||Fair Vinimay Services Pvt Limited|
|13||Fintelligence Data Science Private Limited (RupeeCircle)|
|14||Innofin Solutions Private Limited|
|15||NDX P2P Private Limited|
|16||Ohmy Technologies Private Limited|
|17||Visionary Financepeer Private Limited|
|18||Antworks P2P Financing Private Limited|
|19||Fairassets Technologies India Private Limited (Faircent)|
|20||Transactree Technologies Private Limited|
i2ifunding raised its seed fund recently from SucSEED ventures worth Rs 1.75 Cr, while LendenClub raised around Rs 7 Crore from Artha Ventures in 2019.
P2P lending firm, Faircent raised an undisclosed amount from Das Capital & Gunosy Capital.
Here is a quick snapshot of the active platforms, their locations, funding raised, founder’s details & year of origin –
Further, there has been increasing interest from Chinese P2P lending companies to enter the Indian online lending market. These companies might do a strategic partnership with existing licensed platforms or may seek and RBI nod for certificate of registration in India.
With a huge MSME credit gap in India as well as 500 mn+ credit underserved population, there is tremendous opportunity for P2P lending platforms to scale the bets. Stay tuned to witness how the future unfolds.
To read more about P2P lending click here.