In an interview with Moneycontrol, Rajat Gandhi, CEO and Founder of peer-to-peer lender Faircent, expects a light touch set of guidelines for the P2P lending industry.
The peer-to-peer (P2P) lending model is slowly becoming popular in India. It has raised many questions regarding how two strangers can borrow and lend money over the internet even as the conventional practice involves a series of checks before getting a loan from a bank.
In an interview with Moneycontrol, Rajat Gandhi, CEO and Founder of peer-to-peer lender Faircent, said that lenders can analyse the credit risk of borrowers by looking at their bank statement, income tax filings and physical verification of the borrower at the residence and at the office.
All these details are present on the P2P lender's website and first and foremost they only allow borrowers with a CIBIL score of 650 or above to ask for a loan on the platform.
"All that data is put up on the website and we see all the past loan data through the bureau, CIBIL data, and based on that we risk rate the borrowers," Gandhi said.
"You can analyse the risk profile of the borrower on your own and not necessarily depend on our model, it is like a stock exchange," he added.
To further reduce risk, a minimum of five lenders are required to fund a borrower.
"One loan does not get funded by one lender, we have a rule that no lender can fund more than 20 percent of any borrowers requirement," Gandhi said.
In this way, the risk does not get concentrated and is distributed among various lenders.
Speaking about Faircent's financial performance, Gandhi said that around Rs 20 crore worth of loans have been disbursed over the platform till now and they are clocking an average of Rs 3 crore a month in lending.
For FY18, he expects a around Rs 40 crore-45 crore of loan disbursement.
Recently, the Reserve Bank of India (RBI) official said that the central bank has finalised norms for peer-to-peer (P2P) lending platforms and is expected to release final guidelines in the coming days.
"Although nascent in India and not significant in value yet, the potential benefits that P2P lending promises to various stakeholders (to the borrowers, lenders, agencies etc.) and its associated risks to the financial system are too important to be ignored," RBI had said in a circular back in 2016.
Gandhi expects a light touch set of guidelines for the industry and wants the RBI to work with the startups over the next two to three years to build the legal framework.
WHAT IS P2P LENDING?
Peer-to-peer lending is a form of crowdfunding where an online web-based platform brings individual borrowers and lenders together to raise or lend unsecured loans without a middle man.
P2P lenders have much lower cost structures than traditional banks as they don’t need to have a physical branch or regional offices.
Borrowing P2P is easier and less time-consuming.Follow @shukla_05sid