How to start a P2P Lending Platform in India?

Peer-to-peer or P2P lending is an online platform that enables a person to avail loans from another person, thereby eliminating the role of an intermediary. Peer to peer lending platform directly connects lenders and borrowers. It forms a link between the borrowers who seek unsecured personal loans and investors who want to lend their money to earn a higher (RoI) return on investments. Such a platform facilitates an exclusive list of verified borrowers to investors so that they can choose the borrower accordingly.

It allows lenders to diversify their investments by lending funds to multiple borrowers in small amounts. P2P creates a beneficial situation where lenders and borrowers stand at par.  Peer to Peer Lending is a method of debt financing that allows individuals to borrow and lend money without the involvement of a financial institution or bank. There is no intermediary between borrowers and lenders, so both parties save on the charges of an intermediary.

Features of Peer-to-Peer Lending

The following characteristics appropriately define a P2P lending Platform:

• Peer to peer is an online portal that matches the borrowers with the lenders.
• It does not require to develop a relationship between the borrower and the lender before the lending and borrowing process.
• There is zero percent involvement of a financial institution or an intermediary between the borrower and the lender.
• Lastly, the borrowers and lenders have the flexibility to make their choice of borrowing and investments, respectively.

Who regulates the system of P2P lending in India?

RBI regulates the Peer to Peer lending platforms to safeguard the interest of borrowers and lenders. RBI made it mandatory for all the existing companies of P2P to apply for a license in case they want to continue working as a P2P platform.

As per RBI guidelines, a lender cannot invest more than Rs 10 lakh across every P2P platform. Likewise, a borrower cannot borrow more than Rs 10 lakh across all Peer to Peer platforms. Also, the Reserve Bank of India set a lending limit of up to Rs 50,000, which applies to the borrower as well. 

The active participation of RBI in the functioning of P2P lending platforms helps to increase the credibility of such companies. The amendments of RBI seems to have a significant impact on the operations of P2P platforms in India.

Benefits of P2P Lending over Banks

The peer-to-peer platform is a perfect alternative for banks and other financial institutions. Here are some of the advantages of using Peer to peer platforms such as a convenient online process, flexible terms, and conditions, competitive interest rates, ad much more. Let’s perceive the benefits of P2P in detail:

•  User-Friendly Experience- The whole system of peer to peer lending runs entirely on an online portal. Therefore, the application process is swift and convenient.  It is handy to secure funds in the automated platform of P2P. Generally, peer to peer lending platform provides a list of investors who lend loans to borrowers and combines them through an automated matching process. It implies that the turnaround time on getting the money can be quick and sometimes even as little as a few hours.
• Access to Lower Rates- One often gets access to loans at lower interest rates on P2P platforms in contrast to the traditional lenders like banks. The investors lend money directly to the borrowers via peer to peer platform. The absence of any overheads in P2P turns into the biggest perk for both parties, and interest rates get fixed at competitive rates.
• P2P lending is an ideal substitute for traditional lenders- P2P acts as a perfect substitute for conventional financial modes. It plays an essential role for individuals who are in search of alternative finance for their personal and professional needs.
• Initial quote does not affect the credit score- If you take a personal loan through a P2P lending platform, then you will get a personalised quote which won't affect your credit score. It provides a clear picture of the possible interest rate offer and the affordability of any prospective loans. Many reputed P2P platforms perform a 'soft search' on the borrower's credit history to get an idea about his financial position. It ensures that the search won't appear in future pursuits of other providers. Thus, it enables one to obtain information without affecting the credit score for future finance applications.
• Borrowers have to associate with the peer to peer platform only- The P2P platform assures to simplify the process of lending and borrowing by acting as an intermediary between parties. It implies that a borrower does not have to build a relationship with the investor; they can remain anonymous to each other. Wherein all payments get transferred through the platform only. 

• Unsecured Loans and Higher Flexible than Banks- Being an unsecured loan provider, a P2P platform does not demand any collateral, which is not a case in banks. When you take a loan from a bank then, you have to deposit your personal property as security to seal the deal. P2P has the sole motive to sustain a faster application process and allows you to access funds in a shorter period.

 Peer to peer loans lending platform offers more flexibility, unlike other types of loan lenders. It gives leverage to borrowers to settle the balance of his loan at any time, or make an over payment without spending any extra cost. The users also get a choice to change their monthly repayment date that fits well with their finances.

How to get started for lending and borrowing via P2P?

After going through the benefits of P2P, you must be eager to use the platform of P2P, but before that, you should keep these things in mind:

• Determine an amount on how much you want to lend and also decide the period of lending.
• According to RBI norms, the investor can tie up funds for about 5 years.
• It’s essential to value the specified timescale as you can only lend loans to those who genuinely wish to borrow, so follow a timeline of 1-5 years.
• Some peer-to-peer lending companies render an option to withdraw money during the loan term. A lender has to pay a cost for doing this and wait until another lender comes in to replace him. Ideally, one should avoid doing this, as there is less possibility of getting a high rate of return.
• If you haven’t tried your hands on the new platform of P2P, this is the best time for you to start an investment. Since RBI has started regulating Peer to Peer lending activities in India, so there is a lesser rate of risk. 

Procedure for Funding under P2P Lending

The lenders have three options to choose from to conduct funding via P2P platform:

Auction- Many lenders compete with each other to fund the required loan of borrowers by offering loans at a lower interest rate. Thereafter, the borrower can opt for the lender who fits well with his or her loan requirements. Besides, the borrower has a privilege to borrow more than one loan from different lenders based on the loan amount and the interest rate.

Fixed-Rate Auction-In this method of lending, the lender provides the loan on a fixed rate of interest. It is the most convenient method for lenders.

Marketplace Model- In this method, the platform underwrites the required loan amount of the borrower. Once the loan amount has underwritten, a loan ID gets generated to the borrower, which is sent to the lenders. If the lender finds it suitable, he can lend the loan to the borrower.

Eligibility Criteria

You need to pass the eligibility criteria to run a P2P business:

• A peer to peer lending platform can only run by the NBFCs or registered companies in India.
• To obtain the Certificate of Registration for P2P Lending business, one must possess the Net worth of INR 2 crores.
• If a company was already involved in such business before the CoR made mandatory, then the company shall fulfill all conditions as laid down by the RBI.

Conclusion

Peer to peer is the best investment and lending platform, and one can yield several benefits using it.  Avail professional assistance on P2P lending from us. We specialize in easing the process of obtaining a P2P license. Our services include filing a P2P lending license application with RBI, end-to-end follow-up with RBI, company registration with ROC with P2P object, documentation, data security policy framework, P2P lending model, Business Plan, Risk, and Legal Advisory.