Budget 2019: Here's How Modi Government Can Promote the P2P Industry
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Even though the Chinese P2P industry is tumbling, the Indian ecosystem is pretty optimistic about the domestic P2P industry. Time and again, the banking watchdog has introduced directions to protect investors’ interest while supporting the upward growth of the industry.
In October 2017, when the Reserve Bank of India (RBI) issued guidelines to organize the industry, within a few months, most of the industry’s bottlenecks were diluted.
The relevant players continued to flourish while others packed their bags. As of December 2018, there are more than 10 RBI-registered P2P players operating in this space.
Coming back to 2019, Statista notes that the transaction value in the P2P segment is about $1,123m and this number is expected to grow at CAGR (2019-2023) of 19 per cent resulting to about $2,249m by 2023.
With the interim budget due in February, the industry is looking at the Finance Minister Arun Jaitley to remove the some of the following hurdles, so that the P2P players could continue with its upstream growth graph.
Financial inclusion has been one of the hot topics of the decade. And P2P industry opines that they could bridge some of the credit gaps in the consumer space.
However, the recently released Aadhar verdict, which limits private companies from accessing the data stack, has stalled the process of onboarding consumer and has increased the total turnaround time.
With the increased government focus on driving financial services to the last mile, Nikhil Prabhakar, Head of Marketing & Products, RupeeCircle is hoping that “government introduces initiatives that will help the P2P Industry by simplifying the processes related to KYC verifications and customer on-boarding."
The P2P industry in India is at a very nascent stage. Though, the RBI guidelines addressed multiple pain points of the P2P segment, players time and now have raised concerned regarding the limitation of the regulation.
For instance, a company seeking NBFC-P2P registration is expected to have a net owned funds (NOF) of not less than INR 20 million. The P2P player cannot raise the deposit under Section 45I(bb) of the Act or the Companies Act, 2013, also cannot make its own books.
Which is why, the number of players in the segment are limited and Ambar Kasliwal, Director & CRO, PaisaDukan.com says this builds pressure on existing players because Indian P2P industry is still young and requires high volume.
He also claims that VCs are also not showing enough interest in the business because of the low volume that narrows the sector’s growth i.e. the cost of operations is high and margins are low.
“They can improve only if volumes are allowed. Higher exposure can ensure sector viability as well as will contribute to financial inclusion. The sector is expected to be a $4-$5 billion industry by 2023 but without regulator's support it’s not possible,” he said while adding that, “Considering that the industry is yet to establish its credibility, individual lending is going to be an issue and limits at an institutional level must go up.”
Room in Section 80C
As discussed earlier, the P2P industry has the capacity to disburse multi-million dollar loans. However, for the P2P industry to witnesses this kind of traction both the regulator and the government need to promote the concept among retail investors.
Bhavin Patel, Co-Founder & CEO, LenDenClub suggests the finance ministry can look at the small amount of tax-free investment limit allowed under section 80c.
“If the government can make the investments done through P2P lending tax-free, more investors will join and this will be a great help especially for borrowers. For instance, to boost P2P lending sector, recently UK government have allowed P2P lenders to invest up to £20,000 a year across P2P platforms tax-free. A similar structure can be developed in India, based on our own tax structure,” he advised.
Last year, P2P players also expanded their customer base from unsecured consumer loans to the SMEs, which is one of the most underfinanced sectors in the country.
The gap in the industry is almost $650 billion giving enough room for both traditional and new age lenders to flourish.
In the past, the government has introduced multiple schemes to support SME financing and have also taken cognizance of GST data stack. But they are yet to realize how P2P companies can contribute to SME financing agenda.