The much-delayed peer-to-peer (P2P) lending guidelines have been finalised and will soon be released by the Reserve Bank of India (RBI) once it is notified by the government.
"Following up on the consultation paper we did last year, we are shortly going to come up with guidelines on peer-to-peer lending," said Sudarshan Sen, Executive Director of the RBI at a Nasscom Fintech event.
He said, "There's a process by which we have to notify P2P lending platforms as regulated entities. That process is being done in consultation with the government. Hopefully, we will see some traction on that."
The RBI had floated a consultation paper in April 2016 on such lending platforms.
P2P lending is a form of crowd-funding used to raise loans which are paid back with interest. Just like an online marketplace, P2P lending can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans.
If you want to invest some money, you go to a P2P marketplace and register as a lender.
Fees are paid to the platform by both the lender as well as the borrower. Borrowers pay an origination fee -- either a flat rate fee or as a percentage of the loan amount raised -- according to their risk category.
The proposed regulatory framework would encompass the permitted activity, regulations on capital, governance, business continuity plan and customer interface, apart from regulatory reporting.
"P2P lending is one such business model that has gathered momentum globally and is taking root in India. Although nascent in India and not significant in value yet, potential benefits that P2P lending promises to various stakeholders (to borrowers, lenders, agencies etc) and its associated risks to the financial system are too important to be ignored," the RBI consultation paper said.
According to Sen, "First, we need the government to notify P2P platforms as an entity to be regulated by the RBI. That requires a gazette notification. Once that happens, we come out with regulation."