PEER TO PEER LENDING : ECONOMY
NEWS: Why
peer-to-peer lending has RBI on edge
WHAT’S
IN THE NEWS?
Forced to drop many of
its attractive features, peer-to-peer lending faces an existential crisis in
India
Peer-to-Peer
(P2P) Lending
·
Definition: P2P
lending is a fintech innovation enabling direct lending and borrowing between
individuals without involving banks.
·
Appeal in India:
The promise of tenure-linked assured returns and liquidity made P2P lending
popular among informal lenders and investors in India.
·
Registration and Capital:
P2P platforms must register with the RBI, with a minimum capital requirement of
₹2 crores.
How
P2P Lending Works
·
Platform Role:
P2P platforms connect borrowers with lenders, assess borrowers'
creditworthiness, set interest rates, and facilitate transactions.
·
Borrowers:
Include individuals or small businesses seeking loans for personal use,
business, debt consolidation, or real estate.
·
Lenders:
Individual or institutional investors lend funds in return for interest
payments and may choose specific borrowers or diversify investments to reduce
risk.
Regulatory
Framework
·
RBI Intervention (2016):
The RBI considered regulation due to the rise in informal lending and global
P2P growth, aiming to ensure legitimacy while avoiding systemic risks.
·
Master Directions (2017):
Issues
and Regulatory Actions
·
Bank-like Operations:
Platforms were functioning like banks, taking a spread on lending rates,
prompting further RBI intervention.
·
Identified Issues: