What is Peer to Peer Lending Business?

by Enterslice ITES Pvt. Ltd. Start and Manage Business

“Peer to Peer Lending Platform” means an online platform to borrow or lend money in which there is a direct connection between the buyer and lender and there is no interference of the Bank and the cost involve in giving loan is less than the bank.

P2P Lending business can only be run by Non Banking Finance Company. Special name for this NBFC’S are Non-Banking Financial Company-Peer to Peer Lending Platform (NBFC-P2P) as per the Master direction issued by the reserve bank in this regard.

Reference of the Master direction RBI/DNBR/2017-18/57 Master Direction DNBR (PD) 090/03.10.124/2017-18 updated on February 23, 2018.

Eligibility Criteria for P2P Registration

Before commencing the business of NBFC-P2P, a company shall need to obtain a COR from the Reserve Bank of India
Every company who wants to start the business of NBFC–P2P shall have a net owned fund of Rs. twenty million or such higher amount as the amount may prescribe.

Process of P2P Registration

Every company proposing to carry on the business of NBFC-P2P shall make an application to the Department of Non-Banking Regulation supervision, Mumbai of the Bank.

Before granting the approval, Reserve Bank of India required the following conditions to be fulfilled by the Applicant Company.

Company should be an Indian company.
Company has necessary technological, entrepreneurial and managerial resources to offer such services to the participants.
Company shall have the adequate capital structure to undertake the business of Peer to Peer Lending Platform.
The promoters and the Directors of the company are fit and proper;
The general character of the management of the company is not prejudicial to the public interest;
The company has submitted a plan for, or implemented, a robust and secure Information Technology system;
by the grant of CoR;
Any other conditions as may be specified by the Reserve Bank of India,

After being satisfied, Reserve Bank of India may grant the In-Principal approval for setting up the set–up of the business, such to such conditions as may be impose.

Validity of the In-principal approval is 12 months from the date of granting such in-approvals.

Within the period of 12 months, company shall place the technology platform which is entered in the legal documentations and report the same to Reserve Bank of India.

After 12 months on being satisfied and as the entity is ready with all the equipments, RBI may grant a COR as an NBFC-P2P, subject to condition as the reserve bank may think fit.

Reserve Bank of India may cancel the CoR granted to an NBFC-P2P, if such company –

has ceases to carry on the business of Peer to Peer Lending Platform in India; or
has failed to comply with any condition subject to which the CoR has been issued to it; or
is no longer eligible to hold the CoR; or
at any time fails to fulfill any of the conditions referred to in paragraphs 5(2)(ii) and 5(2)(v); or
fails to –
(i) comply with any Direction issued by the Bank; or
(ii) maintain its accounts and disclose its financial position in accordance with the requirements of the directions issued by the Reserve Bank of India.
(iii) Submit for inspection of its books of account or other relevant documents when so demanded by the Bank.

Pros of P2P Lending Registration for Borrowers

Advantages of online business for borrowers are:

Easy online Application.
Lower interest rates compared with some credit cards and traditional financial institutions.
Monthly payment and Fixed interest with no hidden fees.
No collateral securities required as Loans are unsecured.

Pros of P2P Lending for Lenders