In this Article:1. Features of P2P Lending2. Eligibility and Procedure of P2P Lending3. Regulation of P2P Lending Platforms4. The risk involved in P2P lending5. Precautions to be undertaken by Borrowers in P2P Lending6. Few Platforms Facilitating P2P Lending in India
P2P lending (Peer-to-Peer Lending) enables people to borrow or lend money from other people without having to depend on banking channels. It provides an alternative financing method to individuals for availing loan facilities through online lending platforms. The P2P platforms link borrowers seeking unsecured personal loans with investors willing to lend for earning good returns on their investments. To avail of the benefits of P2P lending, individuals need to register on platforms providing this service as a borrower or a lender after undergoing the verification process. In India, this form of borrowing and lending is gaining significant popularity with platforms such as Lendbox, i-lend, i2ifunding, etc. Through P2P lending platforms, lenders can go through a verified list of borrowers and their details before lending them money. P2P lending is considered a variable of crowdfunding by many people as it matches the needs of both borrowers and lenders.
Features of P2P Lending
- P2P lending provides loans to individuals who do not fit into the lending criteria of traditional banking and financial system from individuals who are looking to invest their surplus money.
- P2P lending serves dual objectives by offering loans borrowers at a reasonable interest rate and allowing lenders to earn decent returns on their investments.
- The P2P lending process is conducted entirely through online platforms where both borrowers and lenders register themselves.
- The interest rate on such loans is either set by the lenders or by the platform based on the risk assessment. Lenders can manage their risk of default by choosing the right borrowers and diversifying among different borrowers.
- P2P lending suffers from no market volatility but is less liquid as compared to investment in the stock market.
- The tax treatment on the interest income from P2P lending in India accrues in line with an individual’s income tax slab rate.
- In India, all P2P lending platforms are strictly regulated by the Reserve Bank of India (RBI).
Eligibility and Procedure of P2P Lending
Though any individual looking to borrow money can borrow through P2P lending platforms, still these platforms mainly attract individuals belonging to low-income groups, or individuals not having any other alternative loan options. The final decision to lend to a specific individual lies with the lender. The process involved in P2P lending is very simple and hassle-free:
- Sign-up to an authentic and reliable P2P lending platform providing services in your area to become a member.
- A member before becoming eligible to avail of loans needs to undergo numerous background checks, checks on personal details, credit history, and employment status.
- Depending on the results of your verification process, you will be assigned different categories based on your perceived risk of default. The borrowers can either choose a loan from the assigned risk category and pay pre-determined interest rates or can choose to have prospective lenders bid on the suitable interest rates.
- Lenders also need to undergo various checks to ensure they have obtained their money through legitimate sources. Lenders can auction their loans. Apart from auctioning, lenders also have an option to diversify their funds among multiple borrowers. Lenders can also fix interest rates to receive desired bids for their loans.
- The P2P lending platform thus serves as an intermediary by conducting all formalities on your behalf and by connecting the prospective lenders with potential borrowers.
Regulation of P2P Lending Platforms
All P2P lending platforms are regulated by the RBI. It is mandatory for all P2P players to register for an NBFC-P2P license to become eligible to provide P2P lending services. The regulations that cover the scope of the P2P lending activities in India prescribe certain prudential norms to be followed. These prudential norms for NBFC-P2P are as follows:
- The aggregate loans taken by a borrower across all P2P platforms shall not exceed Rs. 10 lakhs at any point in time.
- The aggregate loan provided by a lender to all borrowers across all P2P platforms should not exceed Rs. 50 lakhs at any point in time.
- A single lender cannot lend to the same borrower across all P2P platforms an amount exceeding Rs. 50,000 at any point in time.
- The maturity of each loan should not exceed 36 months.
- Borrowers and lenders need to furnish a certificate to NBFC-P2Ps, as applicable, that the limits prescribed are being adhered to.
The risk involved in P2P lending
Lending money through P2P involves a fair amount of risk as these loans are unsecured and provided to individuals who do not meet the prescribed criteria of banks and financial institutions. Further, these platforms do not guarantee to repay the lenders in the event of default by the borrowers. However, P2P platforms do assist lenders in recovery and filing legal notices. P2P platforms need to disclose all information pertaining to the borrowers while keeping the lender’s identities and information confidential. To avoid unwanted risk, it is advised to lenders to look beyond interest rates. They should properly check the profile of the borrower before approving loans. Lenders should diversify their loans among different borrowers to minimize default risk.
Precautions to be undertaken by Borrowers in P2P Lending
There are several online portals offering P2P loans. It is important for borrowers to check and verify the authenticity and reliability of the portal. Borrowers should confirm that the website is Symantec SSL certified before sharing their personal information. It is advised to borrowers to visit several P2P platforms and compare their loans to select the most beneficial one. Borrowers can also bargain with lenders for lower interest rates. Finally, borrowers must read all loan-related terms and conditions carefully before finalizing the deal with a lender.
Few Platforms Facilitating P2P Lending in India
|S. No.||Name of the Platform||Interest Rate||Loan Amount||Loan Tenure|
|1.||Lendbox||11.49% p.a. onwards||Up to Rs. 5 lakhs||Up to 36 months|
|2.||i2ifunding||12% p.a. onwards||Up to Rs. 10 lakhs||
3 - 36 months
|3.||i-lend||12% p.a. onwards||Rs. 25,000 – 5 lakhs||
6 - 36 months
|4.||Faircent||12% p.a. onwards||Rs. 30,000 – 10 lakhs||
6 - 36 months
|5.||OML P2P||9.49% p.a. onwards||Rs. 25,000 – 10 lakhs||
3 - 36 months