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P2P Lending – Peer-to-Peer Platforms

Introduction

What if I have money and you need money? Currently, we go to a bank. The bank gives me 3% interest and charges you 10%. P2P Lending removes the bank. I lend to you directly at say 8%. Win-Win?

1. Mechanism

  • Platform: An online website/app (e.g., Faircent, Lendbox).
  • Lender: Registers and deposits money.
  • Borrower: Registers and asks for loan.
  • Matching: The platform assesses Borrower's credit score and connects them.

2. Regulation (NBFC-P2P)

  • Regulated by RBI.
  • P2P platforms must register as NBFC-P2P.
  • Limits:
    • Aggregate lending by one lender across all P2P: Max ₹50 Lakh.
    • Exposure to single borrower: Max ₹50,000.
    • Maturity: Max 36 months.

3. Risks

  • High Default Risk: Borrowers here often have low credit scores and were rejected by banks.
  • No Guarantee: If borrower defaults, the platform is not liable. The lender loses money.

Summary

  • Model: Direct Lender-Borrower connect.
  • Platform Role: Marketplace (Does not lend its own money).
  • Risk: Unsecured. High risk.

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