You are in urgent need of money for your short term requirements like to buy electronics, credit card dues, medical expenditures, educational expenditures. but you don’t want to go for cumbersome procurers to be followed to get bank loan and you don’t want to pay higher interest rates through credit card or local borrowers. What would be other alternatives?.
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You have money to save and you don’t want to put them in your savings account, which provide lower interest rates for your money. And you don’t have much knowledge in share market. And You want to lend the money to someone. What would be the better alternative to lend or invest your surplus money?
Here is a good alternative for you. Peer-to-peer lending platform. it is an online platform where borrowers and lenders can meet.
Let’s know some technical knowledge about peer-to-peer lending platforms
As per RBI Definition Peer to Peer Lending Platform means an intermediary providing the services of loan facilitation via online medium or otherwise, to the participants.P2P (Peer to Peer) lending platform is a business model (largely online) which facilitates entities (individual or legal person) to directly avail loan from another individual. It is fundamentally website based platform. Gradually, it is turning out to be alternative way of financing. It enables individuals to borrow and lend money without any financial institution as an intermediary. This platform is useful for those who are unable to get it through traditional financial institutions. All P2P platforms are considered non-banking financial companies and regulated by the RBI.
The platform provides the services of collection of loan repayments, due diligence, assesses creditworthiness of prospective borrowers, credit scoring and execution of documents. for providing these kind of services P2P platform charges fees to lenders as wells as borrowers.
Advantages of Peer-to-Peer lending platform:
· Easier lending platform as compare to Banks and non- banking Financial Companies (NBFC).· Easy and quick: simple procedure to register and commence borrowing and investment using this platform
· No intermediary Person as it is a online platform.
· lending and borrwoing can be done with an amount as low as Rs 5,000.
· Easy available of borrowers profile. Lenders can easily decide to lend money
· Lower interest rates and processing charges compared to bank’s personal loans and encashing credit card and other unorganized lendings.
Disadvantags of Peer-to-Peer lending platform:
The major disadvantage is Losing money due to fraud: There is a possibility that lender may submit loan applications with fake identities to P2P platforms and create a profile for borrowing. However, RBI regularized these P2P platforms. Platforms take care of strict due diligence while approving borrowers application.
How to get started for borrowing and lending?
The process is simple. just register yourself on the platform by fillingup the required forms and upload necessary documents like ID proofs, PAN card, Salary slips, Bank statements. Some platforms also asks for social media details. After getting approval from platform, your can start borrowing and lending. The model follows a unique process wherein lenders bid for borrowers. Resultantly, the interest rate is driven on the lower side. The Borrower has the privilege to accept or reject the offer from the Lender.NBFC-P2P Platforms:
Non-banking financial company - Peer to Peer Lending Platform” (NBFC-P2P) means a non-banking institution which carries on the business of a Peer to Peer Lending Platform. These are tech companies registered as per provisions of Company Act. No non-banking institution other than a company shall undertake the business of Peer to Peer Lending Platform. NBFC-P2P shall make an application for registration to the Department of Non-Banking Regulation. After approval the company shall get Certificate of Registration.Registration Elgibilty For NBFC P2P
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.
Following conditions to be fulfilled for registration
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.
Ø RBI may, after being satisfied that the conditions specified under paragraph 5(2)(ii) are 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.
Ø The validity of the in-principle approval issued by the Bank will be twelve months from the date of granting such in-principle approval.
Ø 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.
Ø RBI may, after being satisfied that the entity is ready to commence operations, grant a Commencement of Registration as an NBFC–P2P, subject to conditions as deemed fit by the Bank.
What are the Existing P2P platforms:
Some of the P2P lending platforms are Faircent, OMLP2P, Lendenclub, Finzy, i2ifunding, Cashkumar, Rupeecircle, Lendbox, etc.P2P Lending Prudential Norms
RBI had put up a consultation paper in February, 2016 to gather public opinion so that regulatory framework can be framed and notified Master Directions in 2017 called “Non Banking Finance Company – Peer to Peer Lending Platform Directions, 2017, providing a legal and prudential framework for NBFC - P2P – Registration and Operations. It further mandates to maintain Leverage Ratio up to 2:1 along with a cap of Rs.50.00 lakhs, overall exposure of single lender to all borrowers. The lender should not have exposure of more than fifty thousand rupees to a single borrower entity. The regulator has also notified that any lender investing more than Rs.10.00 lakhs on P2P platforms have to get certified by CA with regard to possessing minimum net-worth of Rs.50.00 lakhs. Borrower(s) can avail loan of maximum Rs.10.00 lakhs on all P2P platforms. The repayment term should not be more than thirty six months.Funds transfer mechanism
The participants have to transfer amount or fund only via Escrow Accounts being operated by trustees promoted by banks. However, RBI stipulates that minimum two escrow accounts need to be maintained out of which one would be for funds obtained from lenders and other one for repayments from borrowers. The regulator has clearly instructed that no cash transactions would be carried out.You can see the flow chart of funds transfer mechanism
https://rbidocs.rbi.org.in/rdocs/content/pdfs/P2PMD04102017_A1.pdf
Moreover, all the procedural and prudential requirements on formal lending business viz. data submission to CIC - Credit Information Companies, fair lending practice codes, grievances redressal mechanism, and data security have to be followed as per RBI guidelines.
RBIMasterCircular Regarding P2P Platforms
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