P2P lenders may be allowed to operate offline

In a bid to impart vibrancy to the fledgling peer-to-peer (P2P) lending space and also further the cause of financial inclusion, the Reserve Bank of India is believed to be looking at allowing players in the sector to have an offline presence besides an online one.

Further, to attract more players into the P2P space, entities (such as societies) other than those registered under the Companies Act may be allowed entry, say industry insiders.

The consultation paper on P2P lending, which was released in April 2016, had recommended that no entity other than a company should undertake P2P lending activity.

The chief of a P2P lending platform observed that akin to chit fund companies, which have a physical presence across the country, P2P players too may be allowed an offline presence to facilitate transactions, especially for those unable to access online platforms. Just like chit funds, P2P lending platforms too are a form of crowd-sourcing of funds.

On-the-ground presence may help the platforms reach out to those who are currently not being served by banks/non-banking finance companies and also help break the vice-like grip of money lenders on local lending, especially in rural areas and small towns.

The final guidelines — relating to permitted activity, prudential/governance/reporting requirements, business continuity plan, and customer interface — that will govern entities in the P2P lending space are expected to be announced by the RBI in a fortnight or so, say industry insiders.

P2P lending platforms, according to the RBI, are largely technology companies registered under the Companies Act that act as aggregators for lenders and borrowers, thereby helping create a match between them. It is a form of crowd-funding online to provide unsecured loans.

The borrower can either be an individual or a business requiring a loan. The lender can also be a natural or a legal person. The interest rate may be set by the platform or by mutual agreement between the borrower and the lender.

Borrowers, according to their risk category, pay an origination fee (either a flat rate fee or as a percentage of the loan amount raised) to the lending platform.

Lenders, depending on the terms of the platform, have to pay an administration fee and an additional fee if they choose to use any additional service (for example legal advice), which the platform may provide.

A P2P lending platform provides the service of collecting loan repayments and doing preliminary assessment on the borrower’s creditworthiness. It makes a profit from arrangement fees.

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