Peer-to-peer lending platforms to be treated as NBFCs

After a year or more of due-diligence, the RBI has notified that peer-to-peer (P2P) lending platforms need to be regulated and treated on par with non-banking financial companies (NBFCs).

In a notification, the RBI has pressed the need for regulation of this segment, which is fairly nascent in India with only 10-12 small players.

While the final guidelines are still awaited, P2P lending platforms such as LenDen Club, Faircent, Qbera, Lendbox, Rupaiya Exchange and Monexo are a relieved lot. The players, had themselves, been asking the apex bank for regulations that would help bring credibility and trust into the business.

Bhavin Patel, co-founder of LenDenClub, said that the move will bring a lot of legal clarity wherein the platform will have the rights to take legal action against defaulters. Most of these borrowers are small businesses with no credit history.

Mukesh Bubna, founder of Monexo, which launched its operations in India last year, said the biggest challenge in the segment is awareness about P2P platforms, which have to spend time, energy and money to educate consumers about the industry just as the mutual fund industry has done so far.

According to Aditya Kumar, Founder and CEO Qbera.com, the lack of regulatory framework has led to very slow growth in the segment which has been in existence for the last 2-3 years. He also said that many lenders tend to look at regulations before returns in the digital space.

While the players are expecting the final guidelines soon, they do not expect RBI to cap interest rates like it did in the microfinance sector.

At present, the biggest challenge in the sector, which could disrupt the urban financial inclusion space, is that most of the players are outside the formal credit rating and reporting process — a reason why lenders and even several investors shy away from investing.

Manav Jeet, MD and CEO, Rubique said, “Regulations will make credit inclusive where customer can have instant access to finance. But important here is to distinguish between these models from the regulatory perspective. When we look at global benchmarks we see many formats.”

At present, there are several players catering to different sets of consumers, from young students to farmers.

While the final regulatory framework for P2P lenders is awaited, alternative lending platforms that provide loan comparisons, consumer loans to buy household goods or commercial loans are also seeking some guidelines.

Rohit Lohia, co-founder and COO, CoinTribe, that works in the area of risk management, said P2P lending regulations will still not clarify a bank’s role when it comes to alternative lending platforms, especially in the areas of risk assessment.

He said that lenders should be allowed to use the services of a third party for aiding risk assessment.

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