The RBI has proposed that peer-to-peer lending platforms would be regulated as a separate category of NBFCs.

The regulator said it was examining feedback received from various stakeholders to finalise the regulatory framework.

Peer-to-peer (P2P) lending is a form of crowd-funding with financial returns. Borrowers and lenders are brought together online with the help of the P2P lending platform, which is used to raise unsecured finance.

The platform conducts a preliminary assessment of a borrower’s creditworthiness and collection of loan repayments and charges both borrowers and lenders a fee.

Interest rates range from a flat rate fixed by the platform to dynamic rates as agreed upon by the borrower and lenders using a cost-plus model (operational costs plus margin for the platform and returns for lenders).

One of the main advantages of P2P lending for borrowers is that the rates are lower than those offered by money lenders/unorganised sector, while the lenders benefit from higher returns compared to a savings account or any other investment.

In India, there are currently many online P2P lending platforms. The sector has been growing at a rapid pace, the RBI said.

The RBI released a consultation paper on P2P lending in April 2016 deliberating the merits and demerits of regulating P2P platforms and underscored the need to develop a balanced regulatory approach that would protect lenders and borrowers without curbing innovation.