What is Peer to Peer Lending?
Peer to Peer lending (P2P) also called social lending, is a widely used financing option by businesses in India. It allows individuals to finance their debt from their peers at competitive and often lower interest rates. It eases the burden on lenders by allowing them to diversify their portfolio of borrowers. Though time-consuming, P2P lending does not require the involvement of a financial institution to mediate the entire process and leaves the entirety of choice to the individual, thus eliminating the middleman.
Advantages of P2P NBFC's
- The turnaround time for the transactions is typically much faster as compared to the bank as most transactions take place online.
- The platform brings diversity and a wide range of lenders and borrowers onto a single platform to match supply and demand. The interest rates are thus more competitive and both parties can be very selective in what they are looking for. The NBFC usually charges a small fee as the agent between both parties.
- Most small to medium businesses are looking for small loans and P2P lending is often very attractive as a financing option. The low-cost loans available help create a win-win situation for both parties and can mean better returns.
Limitations of the P2P Network
- The RBI sets a limit of Rs. 1000000 Lakh and is the hard ceiling amount in this market. No investor can participate in investments above this amount.
- The RBI also sets a maximum ceiling of Rs. 50000 investment by a lender for a single borrower. As for the borrower, there is a hard ceiling of Rs. 1000000 available as a loan. The maturity period of the loans is usually set within 36 months.
- P2P lending requires transparency; thus, it is not a viable option for borrowers who do not have an established credit history. In some cases, it may require a very detailed personal history of the borrower and can be considered invasive.
- As a financial option, lending has its risks. In this case, there is some risk of defaults on the loan.
- Elimination of the middleman means individuals need to be financially sophisticated to manage all the intricacies of the transaction.
- Returns on P2P lending is typically lower than publicly traded index funds.
Does your company meet the eligibility criteria?
- To be eligible for any form of P2P lending the business needs to be incorporated in India.
- The business should be a legitimate entity that has with it the necessary managerial, technological, and economic resources. The entrepreneur should be sufficiently capable.
- The business has adequate capital to keep activities running.
- Meets compliance requirements with the number of directors, making sure they are the best fit for the business.
- Should have or plan to implement sufficient IT infrastructure to back the business.
- Has a clear business plan and vision, with sufficient strategic planning.
- Function Ethically and serve the Public interest by granting CoR.
- Completed an application with the ‘Department of Non-Banking Regulation, Mumbai of the Bank’ with the application form for the specified bank. The bank may require additional paperwork and documentation in the process.
- Obtaining the peer to peer lending registration. This process typically takes about three months after all documents are issued.
How can HBF help?
- Start with a quick check and get professional help meeting all the eligibility criteria.
- Our consultants can greatly ease the burden of documentation and help with obtaining the NBFC – Peer to Peer lending license.
- We liaise with the RBI on your behalf and support you all the way through the RBI license application.
- Our IT department will effectively manage all your IT and Data security framework requirements and ensure compliance with the RBI regulations.
At HBF Direct limited, we take pride in providing the best service when it comes to P2P lending. Contact our team of experts to take the next step.