The Reserve Bank of India (RBI) on 28 April 2016 released consultation paper on Peer to Peer (P2P) lending to classify it as Non-Banking Financial Company (NBFC). The suggestions or comments on the Paper may be sent to Department of Non-Banking Regulation, RBI on or before 31 May 2016.
The Consultation paper outlines the pros and cons of regulating the sector and proposes a suitable framework for regulating the activity.
It includes minimum capital, permitted activity, governance requirements, and fair practices code for customer dealing and data security.
What is Peer to Peer lending?
It is a form of crowd -funding which can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans.
Features of Peer to Peer lending
• The borrower can either be an individual or a business requiring a loan.
• The lender can also be a natural or a legal person.
• Fee is paid to the platform by both the lender as well as the borrower.
• There are many variants of nature and extent of services provided by P2P platforms and global regulatory practices also vary.
• P2P lending is approached differently by regulators in different jurisdictions.
• They are treated as banking by some jurisdictions and as an intermediary in some others.
• Some jurisdictions like Israel and Japan have prohibited it altogether.
Five different ways to regulate P2P lending
P2P lending is regulated in five different ways across the globe. They are
I. Exempt market/ Unregulated through lack of definition- China, Ecuador, Egypt, South Korea, Tunisia
II. Intermediary Regulation- Australia, Argentina, Canada (Ontario), New Zealand, United Kingdom
III. Banking Regulation- France, Germany, Italy
IV. US Model- United States of America
V. Prohibited- Israel, Japan
In India, at present, there is no clear regulatory framework governing in functioning of P2P lending platforms despite having many online P2P lending platforms.
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Who: Peer to Peer lending
When: 28 April 2016