Peer-to-Peer Lending (P2P Lending) Platforms work online as match-makers between borrowers and lenders. The industry on account of its nature of operating online incurs lower costs and needs less human resources than its traditional counterparts do. Which is amongst one of the major factors contributing greatly to its growth despite fierce competition from its well-established competitors.
Indian P2P Market currently estimated at around $4.5 million by the end of 2016, is expected to be at around $4 to $5 billion by 2023, according to a report by Mybigplunge.
Also Read: Top 5 Benefits of Peer-to-Peer Lending
P2P Lending industry due to being unregulated doesn’t sound much trustworthy and a stable market for investment to investors. Therefore it has been able to garner very few lenders’ eye-balls so far but in April 2016 the Reserve of India (RBI) had issued a consultation paper, proposing to bring P2P Lending platforms under its purview and categorize them as non-banking-financial-companies (NBFCs).
And on 20th of September 2017, it issued a notification stating that “all Peer-to-Peer Lending platforms will be regulated by the Reserve Bank of India (RBI). The gazette notification stated that all the P2P platforms will be treated as non-banking-financial-companies (NBFCs) and will be brought under the ambit of the banking regulator, according to the reports by an agency.
The regulatory guidelines, about to be issued by the RBI which will be binding on all Peer-to-Peer Lending Entities, will establish faith amongst lenders and buyers in the industry and is certain to give a huge and much-needed impetus for Growth of P2P Lending Platforms in India.
Very few P2P Lending Markets in the world are regulated by the respective agencies of their country. In Asian P2P Lending Markets UAE, China, Indonesia, and Malaysia have issued regulations. In the UK and Canada, P2P Lending Platforms are regulated as an intermediary. Whereas in the US regulations vary from state to state and in France and Germany it is regulated as a bank.
Once regulations are introduced it will make P2P Lending transparent and easier for all stakeholders (agencies, lenders, buyers etc) to carry out their business effectively and confidently.
Online transactions are more convenient than offline transactions for borrowers and lenders but this alone can not guarantee the Growth of P2P Lending in India. P2P Lending offers a very attractive return on investment somewhere between 12 and 22 percent, which no traditional lending entity provides.
If invested prudently, lenders can reap the kind of yield they expect at the time of lending. Therefore it is highly advisable to all lenders by the lending platforms itself that they checked the creditworthiness of the borrowers themselves and only then participate in the auction and bid of the buyers they want to lend.
P2P Lending Platforms are are growing exponentially in India and establishing themselves in a market currently dominated by big organizations such as banks. Some of which are government backed with pan-India physical presence.
There are mainly 30 P2P Platforms operating in India and It will be very interesting to see how these compete against one another as well as their traditional counterparts and also with global P2P Lending Platforms in India and outside of India if they ever plan to venture in the days to come.