RBI issues guidelines for Peer to Peer lending platform
October 11, 2017

The RBI (Reserve Bank of India), issued instructions for NBFC (Non-banking Financial Companies) that operate peer-to-peer (P2P) lending platforms. 

According to the new guidelines, no NBFC can start or carry on the business of a P2P lending platform without attaining a Certificate of Registration from now onwards.

Every company/ firms looking for registration with the bank as an NBFC-P2P need to have a net owned funds of not less than 20 million rupees or such higher amount as the RBI may specify. 

As per the RBI guidelines, the existing NBFC-P2Ps have to apply for registration as NBFC-P2Ps within 3 months. However, this may bring good news for these NBFC-P2P because there are only a few players already in the market. 

These guidelines issued by Reserve Bank of India will be known as the Non-Banking Financial Company - Peer to Peer Lending Platform and will come into force with immediate effect. 

Functions of NBFC-P2P 

An NBFC-P2P undertakes the following activities inter-alia: 
(i) provide an online platform to members involved in P2P lending. 
(ii) Cannot lend on its own. 
(iv) Cannot hold its own balance sheet of funds received from lenders or funds given to borrowers 
(v) NBFC-P2P can’t cross-sell products. 

Guidelines for lenders and borrowers

(1) A lender can’t lend more than Rs 10 lakh to all borrowers at any point of time across all P2Ps
(2) Borrowers can’t borrow more than Rs 10 lakh from all lenders at any point of time across all P2Ps
(3) Not more than Rs 50,000 can be borrowed from single lender to the same borrower, across all P2Ps. 
(4) The maturity of the loans shall not exceed 36 months.

What is P2P lending?
The Peer to Peer lending is a form of crowd-funding used to raise loans which will be paid with interest later on. It is an effort to bring the people together who need to borrow, from the people who want to invest. 

It is defined as the utilization of the digital platform that matches and brings the lenders with borrowers to provide unsecured loans. 

The borrower could be any individual who requires a loan. The interest rate for the loan may be set by the mutual agreement between the lender and borrower or it may be set by the platform which offers services. 

Fund transfer mechanism
Fund transfer between lenders and borrowers on the P2P platform will happen through escrow account mechanisms. All fund transfers shall be through and from bank accounts. No cash transactions are allowed.