All You Need to Know About the Evolution of P2P Lending in India

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Jun 28, 2022

You must have come across the term P2P lending in recent years. What exactly is P2P lending? Why is the term being used so often across different Fintech platforms? 

P2P or Peer-to-Peer lending is a type of direct lending between individuals who want to invest their money and those who want to borrow money, and that too at a single click. Sounds interesting, right?

In a nutshell, investors can register on an online P2P lending platform, start lending and earn interest without the involvement of a bank or a financial institution.

But before you decide to register on an online P2P lending platform, let us take you through the journey of the evolution of P2P lending in India, its prospects, and regulations. 

How Does RBI Regulate P2P Lending in India?

RBI issued the NBFC-P2P Regulations in 2017 to structurise the online P2P market. The entire P2P lending market was surrounded by uncertainties before the issuance of these regulations, making it a not-so-popular option among investors.  

Already clouded with uncertainty, the market was also exposed to a very high risk of online fraud. Given the circumstances, the P2P lending industry needed to build trust among the public. 

The introduction of NBFC-P2P regulations acted as a boon for the industry. It not only helped shape the evolution of P2P lending in India but also built trust among people. Let us get a brief overview of the regulations first –

  • The Act specifies the scope of business and best practices to be followed.
  • Every P2P platform needs to be registered with RBI as an NBFC-P2P
  • The minimum capital requirement for a P2P lending platform is Rs. 2 Crore and maintains a maximum leverage ratio of 2
  • The concept of the P2P Trusteeship and Escrow mechanism to ensure the safety of funds
  • The P2P lending website needs to be secured by encryption to protect sensitive data.
  • The maximum investment by one investor across all P2P platforms is Rs. 50 lakhs
  • The maximum borrowing by one borrower across all P2P platforms is Rs. 10 lakhs.
  • The maximum amount of loan from one investor to one borrower is Rs. 50,000
  • The maximum loan tenure on P2P platforms is 36 months.
  • The P2P platforms need to send reports to the RBI from time to time and also maintain transparency in disclosures.
  • The P2P platform needs to disclose the number and amount of loans disbursed, default rates on repayment, etc.
  • The P2P platforms have to report the details of defaulters to the credit bureaus.
  • If there is a change in control or the management, the same needs to be brought to public notice 30 days before such change.
  • The website has to detail the process of grievance redressal for the investors and borrowers.

Impact of the RBI Regulations on P2P Lending

Soon after the introduction of the RBI Regulations, the future of peer-to-peer lending witnessed a sea change. Investors and borrowers are now seeing the industry in a new light, and the growth prospects for the industry have become exponential. Let us now look at the major changes that happened in P2P lending post the RBI regulations:

  • The RBI regulations have developed a structure in the P2P lending business. As per the regulations, online P2P lending platforms are now required to maintain 100% transparency in disclosing crucial information.
  • P2P lending businesses are now more credible and stable. 

As a result of these regulations, the industry outlook has shifted, and more and more people are considering P2P lending as a potential investment opportunity. As per a study published by CNBCTV18, the value of the Indian P2P lending industry is expected to reach USD 10 Billion by 2025. Considering the growing acceptance and participation of investors, as well as the above study, the future of P2P lending in India seems to be bright.

What is P2P Trusteeship & Escrow Mechanism?

As per the RBI regulations, every online P2P lending platform has to appoint a bank-promoted Trustee that acts as a third party and manages the transactions on the platform. All the transactions are handled through an Escrow Account to maintain the safety of funds. NO money is allowed to be transferred through Cash. This not only protects the privacy of both parties but also helps eliminate middlemen. 

Let us discuss how this works in detail –

While lending through a P2P lending platform, the investors and the borrowers sign an agreement to route all transactions through an Escrow Account. After this, the P2P platform appoints a bank-promoted trustee. It acts as a third party that supervises the transactions.

As soon as the investor adds money to his P2P account, the amount is credited to the Escrow account.

Once the lender selects a borrower, the P2P trustee is responsible for ensuring proper documentation and execution of the transaction. 

After completing the formalities and running necessary checks, the funds are lent to the borrower. Not only this but the repayments made in the form of EMIs are also routed through the Escrow account to safeguard the investors from the risk of default. 

By now, you must have realized that the RBI regulations have made peer-to-peer lending secure and also helped develop an optimistic outlook about the same. P2P lending platforms such as LenDenClub provide high-return investment opportunities that too in a safe and secure environment. Investors can enjoy numerous benefits by investing in P2P lending with LenDenClub. 

 How to Start P2P Lending with LenDenClub?

P2P lending with LenDenClub is one of the best investment ideas for those who want to earn higher and stable monthly returns without any market risk. Here are the benefits of choosing LenDenClub: 

  • It is an RBI-registered NBFC-P2P
  • It operates through a secured website and maintains complete transparency in disclosures
  • The transactions are carried out through an Escrow Account which is managed by the P2P trustee
  • Automated investment that optimises towards higher returns
  • You can earn high returns up to 10-12% p.a. through online lending without any market risk
  • Default rates as low as 3-4%
  • Robust borrower evaluation based on 200+ data points, making it much safer
  • One of the most popular P2P lending platforms in India, with over 2 Million users
  • Accessible across platforms through the LenDenClub website or mobile app available on Android and iOS

Getting started with LenDenClub is fairly simple. You simply have to Sign Up with your details, complete the KYC and select your investment preferences. Once this is done, the LenDenClub AI-powered interface shortlists the borrowers as per your preference and automatically invests your money. It helps you generate a passive income for yourself without putting in regular efforts. 

The future of peer-to-peer lending in India is bright. Join LenDenClub and start your P2P investment journey now!

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