Peer-to-Peer Lending is a new form of lending where independent lenders lend money to the borrowers via an online platform. This form of lending doesn’t involve a middleman and has the benefit of accelerated transaction. Therefore, over the past few years, more and more people are deferring traditional loaning facilities to invest in P2P Lending License.
However, such a platform cannot exist without government oversight. Thus, the Reserve bank of India has established NBFC-P2P lending guidelines that highlights the rules and regulations the administers of this platform should follow.
The complex nature of those guidelines coupled with the fact that P2P license is a fairly new concept in India, there are many questions that people have about it. In this article, we are taking a glance at top 5 of those questions and giving you appropriate answers.
Is a Person Allowed to Obtain P2P Lending License in India?
Because the Reserve Bank of India wants to keep the regulations flexible at its early staged, certain sections state that an authorized person can apply for P2P Lending license. Consequently, It has caused confusion among people who rightly believe that only a company, a firm of a cooperative society can obtain get the P2P Lending license.
However, within the regulatory points of P2P license, there are some points that are yet to take form. To keep it open, and to set the future course of Peer to Peer Lending in India, the Reserve bank of India has allowed authorized persons to apply for the license. As per para (iv) of the Directions, the term will include the following entities:
- Body of Individuals
- Hindu Undivided Family
- Sole Proprietorship Firm.
- Business entity,
- Cooperative Society, or
- An artificial body
Do Electronic Platforms Service as Direct Service Agents fall under RBI P2P Lending License Regulations?
Electronic platforms that aid banks, Non Banking Financial Companies and All India Financial Institutions to identify the nature of borrowers are notP2P Lending platforms. Ergo, they don’t fall under the purview of RBI P2P License regulations. That being said, if retailers and not NBFCs or AIFI are using the platform for the purpose of lending, then the platform has to obtain P2P lending license to continue its operations.
Precisely, if your platform is business-centric, providing services to banks, NBFCs and financial institutions, it won’t need the P2P lending license. However, when you make the platform customer-centric. focusing clients individually, you need the license.
What is leverage in the context of P2P lending?
One of the biggest topics of contentions among fin-tech entrepreneurs is the meaning of leverage. Carrying several ambiguous meanings, this term feels unfit to be added within the NBFC regulations for peer to peer lending.
However, now we have the answer. The term leverage ratio refers to outside ratio of the liabilities on the balance sheet of an NBFC-P2P Platform that it has the ability to raise divided by its owned funds.
Mathematically: Leverage Ratio =(Liabilities)/(Net-owned Funds)
What is Investible Funds in the context of NBFC-P2P platform?
We calculate Investible funds adding capital that you’ve invested in the P2P lending business to the surplus you have generated out of business of operating the platform. It excludes the funds of lenders and borrowers that flow through escrow accounts. Furthermore, you can’t utilize customers fund that have been transacted through your platform.
What is the minimum capital you need to become eligible for the P2P license?
In addition to providing a list of promoters, the applicant of P2P License should raise at least INR 2 Crore capital. It’s a necessary financial requirement to get P2P Lending license.
The regulations of P2P Lending license are many and are quite complex. The questions we have discussed here are the direct result of the confusion they cause. But, if you seek further assistance, reach out to our RBI consultants. Read more in this blog(On Nativesdaily).