NBFC – Peer to Peer lending platform

>> NBFC –Peer to Peer Lending platform (NBFC-P2P) is a type of Non-Banking Financial Company (NBFC) which carries on the business of providing services of Loan facilitation to willing lenders and borrowers through online platform. Reserve Bank of India (RBI) released a set of guidelines time – to – time to regulate the expanding peer to peer lending business in India.
According to the RBI guidelines, ‘Peer to Peer Lending Platform means an intermediary providing the services of loan facilitation via online medium or otherwise, to the participants.’ Participants are persons who has entered into an arrangement with an NBFC P2P to lend on it or to avail of loan facilitation services provided by it. NBFC-P2P provides services of paired the lender with the borrower through the electronic platform.

>> Features of P2P Lending Platform
P2P NBFC model is transforming the financial market and mutate the financial industry innovative modules and lending services.
These platforms is the best alternative in comparison to old-style exercise of borrowing money from banks as banks take long time to approve loans. Instead of approaching banks and applying for loans, P2P lending platforms can be used. Here are the following features of P2P Lending:-

  • P2P Lending platform involves online transactions
  • On P2P platform, lenders can freely choose borrowers to invest in
  • No direct intermediary negotiating interest rates or amounts.

Peer to Peer Lending Industry in India: –

The online transaction market is growing at a rapid speed, so it is important to make a way for a wide numbers of investors and fund seekers to meet at a common platform for the satisfaction of their financial motives. Although Peer to Peer Lending (P2P) is in its infant stage in India and the risk associated with the P2P lending in the financial market is too prominent to be ignored.

To regulate P2P lending platforms, RBI releases guidelines so that they can grow in a structured, fair and regulated manner. Last year RBI also notified that Peer to Peer lending platforms would be treated as Non Banking Financial Companies (NBFC). RBI issues guidelines time to time in order to safeguard the interest of all lending platforms and lenders as well as borrowers. It has been also predicted by the experts that soon P2P lending portals will be able to access credit data.

>> Types of P2P Lending Model
Classification of P2P Lending model into following types of lending:

  • Consumer Lending: – Small personal loan like for cars / family or self-weddings / holidays / home repairs / repayment of credit card dues.
  • Small Business (SME) Lending: – SME loans are provided to small business for the following purposes:
    • Working capital
    • Business expansion,
    • Asset finance
  • Property Lending: – This is secured P2P lending against the 1st charge of the commercial or residential property. The loan is borrowed for personal mortgages, Buy-to-lets, Residential refurbishment, and developing commercial loans. This model is not popular in India.

>> Requirement for obtaining NBFC-P2P Lending Licence in India

  • Company should be registered in India as Private Limited Company or Public Limited Company with the principal objective of financing.
  • Minimum net owned funds of INR 2 crores.
  • Website / Mobile App Work Flow.
  • The online application is available on RBI’s website (COSMOS).
  • Submission of hard copy of the application along with attached documents shall be submitted to RBI Office.
  • The license will be granted only after vigilant inspection of the application and documents attached with it.

>> Limitations on Transactions through NBFC-P2P platforms
Following are the norms that should be strictly adhered to by NBFC-P2P as per directives issued by RBI:

  • A Lender shall not lend in excess of Rs. 50 Lacs at any point of time across all platforms to all its borrowers.
  • A Lender investing more than Rs. 10 lacs across all platforms shall produce to P2P Platform a certificate of Net worth from Chartered Accountant certifying minimum Net worth.
  • A borrower shall not borrow more than Rs. 10 lacs at any point of time across all platforms.
  • A single lender to a single borrower shall not lend for amount in excess of Rs. 50,000 across all platforms.
  • The maturity period of Loan linked to platform shall not exceed 36 months.

>> Business Activities of P2P Lending platforms in India – Permissible

  • Facilitating e-platform or online marketplace to the participants involved in Peer to Peer Lending.
  • Conducting due diligence of participants.
  • Undertaking Credit assessment and risk profiling of the borrowers and disclosing the same to their respective lenders.
  • Obtaining Consent of Participants to access their credit information.
  • Documentation of Loan agreement and other necessary documents.
  • Providing assistance in disbursement and repayment of loan Amount
  • Loan Recovery services for Loans originated on the Platform.
  • Storing and Processing all data and information related to its activities and participants on hardware located in India.

>> Business Activities of NBFC-P2P Platforms – Prohibited

  • It should not accept deposits as defined under the RBI Act or under the Companies Act.
  • It should not do the business of lending on its own.
  • It cannot arrange or provide Credit enhancement or guarantee services.
  • It shall not facilitate the cash transaction. All transactions and fund transfers shall be only through and from Bank Accounts.
  • It shall not allow secured lending on its platform.
  • Cross sale of products not allowed except for loan specific insurance products.
  • International Flow of fund is prohibited.

>> Disclosure Requirements:- An NBFC-P2P is required to comply with following disclosure requirements:

Reporting Requirements

In addition to compliances and reporting requirement under the Companies Act and other applicable regulation, an NBFC-P2P is required to report to concerned regional office of the Reserve Bank of India as per RBI directions.

a).Quarterly statements: Within 15 days from the end of the quarter:

  • Number and Amount of Loan disbursed and Closed during the quarter
  • Number and Loan Outstanding at the end of the quarter
  • Amount of Fund received and held in escrow account separately from Lenders and borrowers.
  • Number of Complaints received, disposed of, and outstanding at the beginning and end of the quarter separately from lenders and borrowers.
  • Leverage Ratio explaining the nominator and denominator

b). Change in Management and Auditor:
Within one month from the date of changes

  • Change in Registered/ corporate office, address and contact details of NBFC-P2P
  • Change in Directors and address thereof.
  • Change in Authorized signatory on behalf of NBFC-P2P
  • Any change in Auditor and office address of the auditor of the Company.

c). IS Audit Report:
Information System Audit report of duly CISA certified external Auditor within one month of Audit report need to submitted to concerned regional office of RBI.

Conclusion: –

The process and due diligence of NBFC Peer to peer registration is quite complex and can take some time. So, take assistance from MNRS and Associates