Overview

P2P lending, also known as peer-to-peer lending, is an online channel that bridges the gap between potential borrowers and lenders. It amplifies credit availability and gets rid of unnecessary paperwork or steps, ensuring prompt and hassle-free credit for borrowers. What makes the P2P platform stand out is the availability of numerous certified lenders. This enables time-saving for credit-seekers who need funds urgently and promptly. 

The P2P platform is disruptive since it mitigates the requirement of approaching traditional banks, which typically takes weeks or even months to process the credit request owing to rigorous vetting procedures.  Although P2P lending is more or less seamless and transparent,  it still needs to fill some gaps like preventing lenders from fraudulent borrowers. 

Some frontline benefits of P2P lending include faster processing time, access to a variety of lenders, a straightforward application process, and in-depth risk assessments. 

Understanding the Notion of Peer-to-peer (P2P) Lending

Peer-to-peer lending comprises three parties:  a lender,  the borrower,  and the P2P platform. Post registering on the portal, borrowers and lenders can conduct a search to find a suitable match,  typically based on funding requirements and risk appetite. 

The P2P platform connects potential borrowers with lenders- an intermediary that facilitates the borrowing and repayment process.  The portal enables lenders to track their investments and keep track of repayment activities.

The borrowers have access to multiple repayment options based on the income threshold and other attributes.  The availability of collateral-free loans is another remarkable feature of this revolutionary platform. 

How P2P Lending Works for Investors? 

Investors or lenders have a variety of options to choose from when it comes to finding suitable lenders. To ease the blow,  the platform enables borrowers to narrow their options based on their risk appetite. Likewise, P2P platforms reveal borrowers’ credit history, which helps lenders to make informed and risk-free decisions.

Investors can ensure risk diversification by lending funds to multiple credit-seekers, reinforcing multiple streams of repayment income boasting the principal amount and interest. The withdrawal is as seamless as using any digital payment application. The platform ensures seamless administration of investments, ensuring a hassle-free experience for onboard users. 

How P2P Lending Works for Borrowers?

The P2P platform is an expedited version of what banks do for credit disbursement. The process is more or less the same- you approach the platform, file documents, the portal verifies the credentials and credit history, and the fund is transferred after an inspection carried out by the lender if required. 

Coming to the repayment, borrowers can repay the loans as per the agreement with the lender. Timely repayment boosts the borrower’s credibility with time, which in turn, helps broaden their credit accessibility. 

Advantages

Benefits of Peer-to-Peer (P2P) Lending

P2P lending boasts a myriad of lenders, ensuring an abundance of funds for credit seekers with unmatched interest rates and lucrative repayment options.  The platform caters to many borrowers, ranging from small entrepreneurs to companies with prominent footprints.

Credit request processing is way faster on these platforms than on conventional banks since cutting-edge technologies, including blockchain technology and cloud computing, drive them. Unlike banks where request onboarding can be extremely tedious and time-consuming at times, P2P lending steers clear formalities, either for investing or lending, in no time.

Guidelines

RBI’s Guidelines for P2P lending Platform

Transformative changes in Banking and increasing demand for hassle-free and prompt credit have led to the birth of P2P lending. As of now, 24 RBI-approved p2p lending platforms are operating in India, with a majority of being charging a commission of 1-3% for facilitating transactions.

Faircent, being the first Indian company in the P2P realm, has disbursed loans amounting to 1145 crore in FY21, ensuring a leap of 24 percent compared to the previous year’s figure. 

The Reserve Bank of India is the governing body of p2p lenders in India. RBI underpins various norms for ensuring level field play and consumer protection. The following guidelines are extensively formulated to ensure the safety and security of investors and borrowers. 

• The platform can serve as an intermediary only.
• The platform is not allowed to disburse loans on its own.
• Solicitation concerning assured return is strictly prohibited for P2P lenders.
• Ensuring seamless and transparent funds transfer to the beneficiary's account is essential.
• Data protection and its security should be the utmost priority of the platform. Besides, there should be a robust risk management system in place for fraud mitigation.
• Applicable tax slabs should be accessible to investors so that they can make informed decisions during credit disbursement.
• The credit disbursement threshold can range from 10-50 lakhs for lenders. However, disbursement of credit amounting to over 10 lakhs is not possible unless the lender shares a net-worth certificate with the platform. 

Who can serve as a P2P platform in India?

P2P platforms are governed by the RBI and cannot become functional unless they adhere to the following compliance requirements:

• Securing RBI’s approval is a must to function as a P2P in India.
• INR 2 crore is the minimum capital requirement to stand eligible as a P2P platform.
• P2P platforms should align with the Anti-Money Laundering (AML) standards and Know Your Customer (KYC) guidelines set by the RBI.
• The lender dealing with a single borrower across all P2P platforms can lend as high as Rs 50000.
• The minimum threshold of capital adequacy ratio for the P2P platform has been capped at 15%.
• P2P platforms must stay transparent when it comes to sharing information such as charges, fees, and interest rates with borrowers and lenders.
• P2P platforms cannot run any solicilation scheme that assures credit disbursement or high return.

Documents Required

Arranging the following paperwork with the P2P license application is mandatory. The RBI will cross-check these documents for accuracy and legitimacy. Any error or misleading information in documents is unacceptable and hence it can lead to application cancellation.

• Certificate of incorporation
• Articles of Association
• Memorandum of Association
• Net Worth Certificate of the Company
• Audited the Balance Sheet of the company
• A declaration that directors adhere to the "Fit and Proper" Criteria
• Feasible business plan
• Website source code

Process to Secure P2P Lending Licence

The procedure for securing a P2P license is as follows:

1.   Incorporation of the company:

This is a critical step that requires incorporating an entity seeking a P2P license. You can opt for any business structure that is government-recognized and falls under a given legislation.

2.   Drafting of documents:

This step requires the drafting of founding documents like MoA and AoA.

3.   Application filing:

Visit the RBI and file a prescribed application form. The form must entail accurate information; try to keep redundancy and irrelevancy at bay.

4. Submission of application to RBI:

Submit the application along with required documents as the way RBI recommended.

5. Analysis of applicants by RBI

RBI vets the shared credentials to determine the prowess of the entity to be a P2P lender. The authority takes several eligibility grounds into account during the verification process. 

6. Grant of P2P Lending license

Post successful vetting, RBI shall grant the license upon which the license can begin pursuing their core business functions as per the RBI’s norms.

How Adviso Can Secure P2P Lending License?

Adviso is a proactive agency helmed by professionals having years of experience in RBI licensing and regulatory regime. With our top-tier support, you can avoid the hassle of delving into endless compliances for devising paperwork. Our experts are extremely good at picking pain points and patching them in no time, getting clients ready for upcoming challenges. Call Adviso today if securing a P2P lending license in no go is your goal.