The Reserve Bank of India (RBI) is currently awaiting a gazette notification from the government authorities for getting regulatory control over P2P lending and setting up guidelines for the sector.
Executive director of RBI, Sudarshan Sen, mentioned that the bank will be coming up with guidelines for peer-to-peer lending following the consultation paper that was done last year. The consultation paper was released in April 2016, but it has not yet materialised into final guidelines.
Sen mentioned that RBI will release the final regulation once they receive a gazette notification from the government. Sen also stated that the legislative change has already been established for the upcoming regulations.
An official from the finance ministry had mentioned earlier that the norms will be released by RBI before the end of July 2017. The government has also recommended P2P lenders to be categorised as non-banking financial institutions. The official further stated that the P2P platform needs to come under the RBI ambit, so that they play by the rules.
The official said that the proposed regulations will include permitted activities, governance, guidelines on capital, customer interface, business continuity plan, and regulatory reporting.
The consultation paper had stated that P2P lending offers several benefits to various stakeholders, including lenders, borrowers, and agencies. Although the practice is nascent in the country, its position in the financial landscape cannot be overlooked.
How P2P lending works
P2P lending works on the crowd-funding concept. Unsecured loans are raised and are paid back with interest. There are online platforms that match lenders to borrowers this way. The interest rate may be based on a mutual agreement between the lender and the borrower or may be set by the platform itself.
The lender and borrower pay fees to the platform. Borrowers pay the origination fee that is either a fixed amount or is a percentage of the loan amount raised. The lenders pay administration fees and additional fees for extra services they opt for.
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