New regulatory guidelines for Peer-to-Peer (P2P) lending have been launched by the Reserve Bank of India (RBI) to introduce more legitimacy in the lending platforms. These rules are aimed at safeguarding both, the lenders and the borrowers and hence, make P2P lending safer and more credible. This article also explains the difference in the new guidelines which are likely to affect the P2P lending business in India.

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What Are P2P Lending Platforms?

A P2P lending platform is a mechanism whereby people can lend money to other people through the help of an organisation. These are the online marketplaces for lending products that are controlled by the Reserve Bank Of India (RBI) and are only allowed to connect the borrowers and the lenders as well as earn their commissions.

The funds through the provision of loans can be used to cater for different short-term incidences such as medical bills, business opportunities, or travel among others.

What Are The Key Changes In RBI's New Guidelines

• No Credit Guarantee by P2P Platforms:-

The RBI has been very much clear on the point that P2P lending platforms cannot offer any guarantee for credit. This in turn means that whenever a borrower offers a particular loan and fails to pay it back then the platform does not incur the loss. Borrowers hence will never be fully protected from being exposed to underlying risks in a credit transaction and lenders are now fully charged with the responsibility of assessing risks in credit.

• Fund Transfers Through an Escrow Account:-

Another option is to transfer funds via an escrow account. Essentially, it means that there is an account indicated, which contains the money that the buyer/seller wants to transfer. The escrow carries out the job of sending money on behalf of both the buyer and the seller. The new rules of the regulation state that any P2P platform that facilitates lending has to transfer the funds through an escrow account within the shortest time possible, which is at the rate of T+1. This enhances the security of the funds deposited by lenders as well as borrowers with the lenders’ funds being disbursed to the right borrowers.

• Restriction on Cross-Selling Products:-

It added that P2P platforms cannot engage in product bundling wherein platforms offer products across the peer-to-peer lending platforms except for the insurance products that are related to loans. This change is good because it stops the platform from forcing users into making undesired purchases and instead concentrates on its main business of facilitating lenders and borrowers.

• Cap on Lending Amounts:-

As for the costs of borrowing, the RBI has kept the limit of Rs 50,00,000 in place which is the total amount that can be borrowed from all P2P sites. All those who give loans above Rs. 10 lakh have to furnish a net-worth certificate.

• Government and Board-endorsed policy for matching Lenders and Borrowers:-

Finally yet importantly, P2P platforms must develop and implement a matching policy which is expected to be approved by the board. This new rule also helps in improving governance and provides clarity for the lenders as to how the borrowers are chosen.

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• Rate performance per month and National Performance Annual Disclosures:-

A P2P platform owner is to reveal NPAs and any losses of principals or interest on them every month. This will benefit lenders since the evaluation of the performance of this platform will be more precise.

• Revised Fee Structure:-

This means that P2P platforms cannot set their fees for lending services depending upon collection rates. However, they can only demand a right to receive a definite rate or a definite sum of money which must be fixed and cannot exceed the loan amount. This change makes the fees to be more transparent and also to be made clear from the onset.

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Conclusion

The new rules from the RBI targeting P2P platforms bring a lot of much-needed transparency and safety into the way lending is conducted. Despite the potential changes that these aspects may require to the P2P platform, the environment will be more secure and defined for both the lenders and borrowers.

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Important Links

Official Website: https://www.rbi.org.in/home.aspx

Contact Information: https://www.rbi.org.in/Scripts/helpdesk.aspx