What is P2P Lending – A new genre of NBFCs By CS Shweta Dubey


'Crowd Funding' generally refers to a method of funding a project or venture through small amounts of money raised from a large number of people. The P2P platforms do not lend their own funds but act as facilitators to both the loan seeker and loan giver.
Previously there was no such mandatory compliances for the P2P online intermediaries but now RBI has issued the Master Directions on 4th Oct 2017 for Compliances of the same for the NBFCs that carries on the business of a Peer to Peer Lending Platform.
What to do in the case of existing entities engaged in the said business of P2P Lending Platform?
As on the effective date of these directions, they can continue to do so, subject to the conditions as mentioned in the master directions in sub-paragraph (2)(vii) in this Paragraph.
Why RBI came up with the Master Directions:
Basically, P2P lendings are the unsecured ones and often referred to as crowd lending. And to make it more secure and nascent, RBI came up with this regulatory norms.
- Registration time frame for the Companies:-
- Maintenance of Minimum Net Owned Funds(NOF) and other Prudential Norms for the P2P NBFCs:
- For maintaining a Leverage Ratio (i.e. outside liabilities) should not exceed twice.
- Limit of lending for per lender INR 10,00,000/-.
- Similarly, a borrower cannot take loans in aggregate at any point of time, across all P2Ps, exceeding INR 10,00,000/-.and the exposure of a single lender to the same borrower, across all P2Ps, shall not exceed INR 50,000/-.
- The maturity of the loans shall not exceed 36 months.
- NBFIs which can carry on the business of P2P Lending?
- Scope of Activities:
DOs |
Don’ts |
Shall act only as an intermediary providing an online marketplace or platform |
Cannot raise deposits u/s Section 45I(bb) of the Act or the Companies Act, 2013; |
Shall undertake due diligence on the participants to secure the lenders. |
Cannot lend on its own or not provide or arrange any credit enhancement or credit guarantee |
require prior and explicit consent of the participant to access its credit information and proper documentation with respect to loan like loan agreements etc. should be maintained. |
cannot permit international flow of funds and cannot facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted. |
The NBFC now needs to undertake credit assessment and risk profiling of the borrowers and disclosure of the same to the lenders for lowering the risk of defaults and to maintain the transparency between the lender and the borrower. |
cannot cross-sell any product except for loan specific insurance products
|
Can only provide assistance for disbursement and repayments of loans. |
cannot hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans; or such funds |
5. Use of Escrow Account:
RBI in its notification mandates the use of escrow accounts for both the lenders and the borrowers which shall be operated by a trustee and the fund transfer mechanism so that the threat of money laundering can be removed. Further the use of cash is totally debarred in the transactions. The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts.
6. Transparency and Disclosure Requirements:
The Bank now makes it mandatory for the lenders and borrowers a number of disclosures, so that adequate transparency shall be maintained from both ends to maintain a two way translucency and the Company is directed to preserve the supporting documents with regard to any loans.
The disclosures required are as follows:
Details about the borrower personal identity, required amount, interest rate sought and credit score as arrived by the NBFC-P2P, terms and conditions, interest rate of the loan to the lender.
Details about the lender/s including proposed amount, interest rate offered but excluding personal identity and contact details to the borrower.
To disclose on the public website grievance redressal mechanism, overview of credit assessment/score methodology and factors considered, disclosures on usage/protection of data, grievance redressal mechanism, its business model etc.
The interest rates displayed on the platform shall be in Annualized Percentage Rate (APR) format.
7. Board framed policies:
The NBFCs are now required to frame a number of policies framed by its Board of Directors for more security and more security for the lender’s money:
Fit and Proper criteria for the Board of Directors have been mentioned in the Master Direction issued by the Bank and all the directors of the NBFCs should meet the formed standard criteria.
Board approved policy to address participant grievances/complaints to maintain the grievances of the stakeholders and redress them within a time period of maximum one month.
Fair Practices code for the various stakeholders covering the general guidelines for recovery of loans, taking explicit affirmation from the lender about the risk assigned before concluding the proposed transaction.
8. Submitting data to CICs:
A more step by the Bank to prevent the money of the lenders is that now every P2P NBFC shall become a member of Credit Information Corporations (CICs) and shall:
a) To keep the credit information (relating to borrower transactions on the platform) maintained by it, updated regularly on a monthly basis or at such shorter intervals as may be mutually agreed upon between the NBFC-P2P and the CICs;
b) To take all such steps which may be necessary to ensure that the credit information furnished by it is up to date, accurate and complete;
To include necessary consents in the agreement with the participants for providing the required credit information.

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About Author
Shweta Dubey
Qualification: Company Secretary
Company: Anmol Industries Ltd.
Location: Kolkata
Member Since: 29 Mar 2018 | Total Articles Contributed: 8
About Author :
I am a qualified CS currently working with a FMCG Organisation in Kolkata and have a keen interest in Corporate Laws.
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