Be it for the shortage of cash post-demonetization or the increasing number of small business entities, peer-to-peer lending platforms have been mushrooming across the country. But the growth of the sector and also the growing risk of fraudulent practices in the industry brought about the necessity to regulate the industry.
Entrepreneurs in the space are now gearing up for the RBI guidelines to be issued in the next two-three weeks.
Regulations Are Welcome
For most start-up founders, regulations mean a lot more work, but entrepreneurs in the peer-to-peer lending platform are welcoming these guidelines.
“P2P regulation in India would make India a Credit Inclusive Society, wherein every Indian can access instant credit and those who have better repayment / digital footprints would have better and transparent negotiation power when it comes to cost.
“It would democratize the entire money circle and would give power in the hands of millions of people, which today is in the hands of a few select corporates / large banks, NBFC’s. If P2P is regulated properly, it could transform the entire landscape of our economy in the years to come. It may also emerge as one of the best alternate assets for people,” said Keerthi Kumar Jain, Founder of AnytimeLoan.
Others also believe that the regulations will help people have more faith in the sector. “We believe that the RBI guidelines will provide legal sanctity to P2P lending platforms as a credible alternative to the banking system in the business of lending. Banks and money lenders will now have healthy competition and face challenges owing to the lesser involvement of intermediaries. The guidelines will also give confidence to the lenders, who should participate in P2P actively,” said Brahma Mahesh Khaderbad, Co-founder, and CEO, FinMomenta.
What to Expect
While they wait with bated breath to know more about the guidelines, entrepreneurs are sure that they will end up making the sector a much more attractive one. “The RBI is expected to issue guidelines on the capital structure of the company, permitted activity, governance and the reporting activities. The platform could be expected to be well capitalized up to INR 2 crore that will only allow serious players in this space. There could be guidelines on governance also where the management team could be expected to have bankers on board. This guideline will again help bring domain expertise and experience that is much needed by the platforms,” said Khaderbad.
Can Hope For Tax Rebates
Jain talked about how regulations could also help make transactions easier on their platforms while also talking about tax rebates. “It would be interesting to see how RBI would address the money lenders’ act that each and every state follows and make a uniform law so that any individual can lend to any other individual across India without any restrictions. With One India, One tax and One market as our approach, RBI should ideally take a similar approach on P2P as well. Most importantly, they should allow interest paid against loan availed via P2P channel to be claimed as an expense, even for individual taxpayers and extend certain tax rebate towards income generated via lending,” he said.
Making things easier for the consumer has to be the main aim, is what many believe. “Another interesting point is to see the how the flow of money from a lender to borrower account and collection of dues will be — either via Nodal account or any other mechanism. If it’s via nodal account, then RBI should ensure that banks don’t levy charges for opening and maintaining such nodal accounts with them, as the same would unnecessarily add to the cost for the end consumer,” Jain said.
Risk From Frauds will Lessen
Fraud management will also become an easier task. “The reporting activities are well needed to ensure that frauds are contained and the right borrower is given a fair opportunity to get a loan at the right price,” said Khaderbad. Agreeing on the same, Jain said, “We expect RBI to have stronger guidelines/law for defaulters who avail loans from P2P platforms. Further, RBI should allow P2P platforms to update details of borrowers, who default on repayments.”
What they Don’t Want
Entrepreneurs are also clear about what they do not want the RBI to interfere in. “RBI should not intervene on defining rate of interest/charges and leave the same to basic economic principle, wherein demand and supply would take its own course in arriving at a price point that’s conducive for the overall market. Having said that, RBI can keep an upper limit on ROI to avoid misuse of the system, but the same should be kept with a scientific approach to risk, cost of capital, cost of servicing, demand & supply; as only then would someone leverage his / her savings into wealth via P2P lending,” said Jain.