PEER TO PEER (P2P) LENDING

RELEVANCE – UPSC GS PRELIMS & GS MAINS – III

PRACTICE QUESTIONS

First go through the text (given after the questions) and then attempt the questions.

QUES 1 . Consider the following statements about  peer-to-peer (P2P) lending 

1 .It is the use of an online platform that matches lenders with borrowers to provide unsecured loans. 

2 . The interest rate may be set by the platform or mutual agreement between the borrower and lender.

Which among the above statements is/are correct?

a . 1 only

b . 2 only

c . Both 1 and 2

d . Neither 1 nor 2

Answer –c

ABOUT PEER TO PEER (P2P) LENDING

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P2P lending is a form of crowd-funding used to raise loans which are paid back with interest by bringing together people who need to borrow, from those who want to invest.

It can be defined as the use of an online platform that matches lenders with borrowers to provide unsecured loans. The borrower can either be an individual or a legal person requiring a loan. The interest rate may be set by the platform or mutual agreement between the borrower and lender.

Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017

The Reserve Bank of India (RBI), on October 4,2017 issued directions for non-banking financial companies (NBFC) that operate peer-to-peer (P2P) lending platforms. According to the directions, from now on, no NBFC can start or carry on the business of a P2P lending platform without obtaining a Certificate of Registration. Every company seeking registration with the bank as an NBFC-P2P shall have a net owned funds of not less than Rs 20 million or such higher amount as the bank may specify.

Scope of activities of NBFC-P2P

Among several other things, an NBFC-P2P can:

(i) Act as an intermediary providing an online marketplace or platform to participants involved in P2P lending.

(ii) Not raise deposits as defined by or under Section 45I(bb) of the Act or the Companies Act, 2013.

(iii) Not lend on its own.

(iv) Not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans.

(v) Not cross-sell products except for loan-specific insurance products.

(vi) Not permit international flow of funds.

An NBFC-P2P will be expected to:

(i) Undertake due diligence on the participants.

(ii) Undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders.

(iii) Undertake documentation of loan agreements and other related documents.

(iv) Provide assistance in disbursement and repayments of loan amount.

(v) Render services for recovery of loans originated on the platform.

Prudential norms

(1) The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh.

(2) The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh.

(3) The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed Rs 50,000.

(4) The maturity of the loans shall not exceed 36 months.