Compliance and Registration of Peer to Peer Lending License Platform

NBFC-Peer to Peer Lending License is an online platform to raise loans to be paid back with interest. A legal entity or an individual can borrow the loan. This platform may also set the interest rate applied to the loans or be decided mutually between the parties. Peer to Peer Lending is best for entrepreneurs and startups to boost start their business as they need venture funding. Taking a loan from regular banks, it charges a higher rate of interest, whereas, on this P2P Lending platform, the startups or entrepreneurs can easily borrow money from individuals. We can also say that P2P platform is a form of social lending where individuals can borrow or lend money and there is nil involvement of any financial companies or institutions, thus, lenders are free to choose borrower. Scroll down to check more information regarding Peer to Peer Lending License.

Peer to Peer Lending License – An Overview

P2P lending companies are regulated by RBI or Reserve Bank of India and operate online, including low overhead costs. Peer to Peer Lending License is profitable for all the lenders and borrowers so that lender can earn higher interest rates while borrowers can borrow the money at a lower interest rate. It is mandatory to obtain a Peer to Peer Lending License from the Reserve Bank of India for carrying out a P2P lending business in India. To get a P2p lending license, you have to file an application and the essential documents to the authority.

Different types of Peer to Peer Lending Model

Following are the different types of P2P Lending models:

1. Consumer Lending: Small personal loan such as for vehicles/weddings/home repairs/repayment of credit card bills.
2. SME or Small Business Lending: SME loans are offered to small businesses for the following purposes:

• Asset Finance.
• Working Capital.
• Business Expansion.

3. Property Lending: This is secured Peer to Peer Lending against the first charge of the residential or commercial property. The loan is borrowed for residential refurbishment, personal mortgages, and developing commercial loans, but this model is not so popular in India.

Exploring the Merits and Demerits of Peer to Peer Lending Platform

Following are the merits and demerits of P2P Lending License Platform for borrowers and lenders:

• Merits for Borrowers:

1. Any borrowers can get the loans at very low rate of interest as compared to banks and credit cards. In some cases, a reduction of about 35% has been witnessed..
2. This platform provides the leverage of fixed interest rate in case of late payments of loans.
3. The application process for loans is simple and fast.
4. It requires lower fees as compared to other modes of finances and there is no penalty is attracted to pre-payment.

• Demerits for Borrowers:

1. It involves low amount of loan as compared to banks.
2. Less security.
3. In some case the borrowers are more than lenders.

• Merits for Lenders:

1. Usually the returns are provided to the investors are higher and depending upon the type of risks you accept.
2. There are inclusive variety of options to put their capital info for investors.
3. P2P lending platform provides the lenders an option to directly communicate with the borrowers and settles their deals with the borrowers.

• Demerits for Lenders:

1. The risk associated is not certain.
2. With Peer to Peer industry still in its promising stage and it would be early to reach a decisive conclusion.
3. Returns are lower in comparison to traded index fund.

Operational Compliances for NBFC Peer to Peer Lending License

Following are the operational compliances for the NBFC-Peer to Peer Lending License:

Operation Framework and Policy:

An NBFC Peer to Peer Lending needs to draft a policy for the following criteria:

• Forming an eligibility criterion for the lenders and borrowers.
• Guessing out the pricing of all the available services.
• Secure the data from any unauthorized access.
• Addressing complaints.
• Laying down all the rules and regulations for borrowers and lenders in an unbiased manner.
• Laying down proper and fit criteria for the directors.

2. Information System and Maintenance: A Peer to Peer Lending License needs to set up a sound infrastructure supported by the latest technology. The system should be able to provide documents and information on demand to the borrowers and lenders, and the setup must safeguard the participants' rights and information.

• The information technology context must follow all the conditions given by RBI or Reserve Bank of India for the NBFC sector.
• An NBFC-Peer to Peer Lending must secure the Board-approved policy regarding the security and maintenance of the Information Technology System.
• A business plan should serve the credits for fill tenures in case if the platform gets closed due to any reasons.

3. Disbursal of Loan through P2P Platform: All credit must process when the lender renders its approval and the proposed parties signed the credit agreement.

1. Sharing Information with Credit Information Companies: An NBFC- Peer to Peer must join the CICs (Credit Information Companies) and occasionally share the information of the borrowers on its platform, depending on the terms with Credit Information Companies.
2. Setting up an Account for Loan and Collection Disbursements: All the transactions started from the Peer to Peer platforms need to be done through a separate account in the banks, which is handled by a Bank promoted trustee. The funds accumulated from the borrowers and lenders must be transferred through an escrow account only.

Conclusion

Peer to Peer lending license can be obtained from the Reserve bank of India but not without fulfilling the due compliances associated with it. Essential documents should be filed along with the application for obtaining this license.

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