Peer-to-Peer (P2P) Lending is widely talked about since it is now falling under the purview of the Reserve Bank of India (RBI) directions. This is provided mostly to small borrowers who are spread far and wide. The unique feature of P2P lending is that companies providing P2P lending operate online and, therefore, they can provide these financial services at a cheaper rate as compared to the interest rate on fixed deposit of banks etc. Further, with the help of their online platforms, they bring both lenders / investors and borrowers together by matching their requirements. These loans are often unsecured and financed by one or more 'peer' lenders. P2P lending is one such business model that has gathered momentum globally and is taking roots in India too. Such platforms are developed in US, UK, Australia and other financial markets, but the US remains the leader in the P2P lending space. Since 2016, RBI has been regulating Non-Banking Finance Companies (NBFCs) P2P lending platforms to protect the interest of lenders and borrowers. While P2P lending is taking-off steadily in India and, there is enough potential to promote this activity in the near future, it calls for creating awareness of this source of finance on the part of lenders / investors, NBFC-P2Ps and borrowers at large, it also calls for examining different facets of P2P lending. Towards this end, the present article discusses concept and process, the role of P2P lending intermediaries, global developments, regulatory aspects, P2P lending in India and bankers' perspectives.
Concept and process
P2P lending intermediaries provide an online platform that matches lenders with borrowers in order to provide mostly unsecured loans. Through the platform, a person, who is looking to invest as lender his / her money, lends it to another person ie borrower who is looking for a loan. It is not necessary to have a prior relationship between the lender and the borrower. The borrower can either be an individual or a legal person such as partnership firm, company etc, requiring a loan.
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