How often have you steered clear of the idea of applying for a loan just because of the exorbitant interest rates? Instead you might have borrowed the money from a family member or a friend. If only the interest rates on loans were not so high, right?
Well, here is some good news. Peer to peer lending aka P2P lending is one such concept which is surely gaining momentum in the Indian financial scene. While the interest rates may not be 0 as in the case if you borrow funds from a friend, they are definitely lower compared to the rates on the other loans. What’s more the Reserve Bank of India has come forth with some proposals to regulate the concept, thereby enhancing the benefits that can be reaped from it.
What is P2P Lending?
Have you heard about the crowd funding concept, where renowned businessmen lend their money to fund an ambitious business project? Peer to peer lending also works on similar lines. In this case a person can borrow the desired amount of funds from another individual without the intervention of any financial organizations. Mostly carried out online, all this lending and borrowing takes place on a platform which brings together the borrowers and lenders.
Benefits of P2P Lending
P2P lending surely has its share of benefits. Let us take a look at what these are.
A Blessing in Disguise for Borrowers: A lot of people with a low credit score may find it impossible to get a loan from a bank or a financial organization. However, P2P lending does not take the credit score into account. Thus, this is surely a blessing in disguise for the individuals who may not be able to secure loans for their necessities due to various issues.
Easy Way Make Money: People often look for different ways to multiply the money in their banks. While there are a number of investment options, most of these are long term. Thus, individuals who want to increase their funds within a short period can surely benefit from P2P lending.
P2P Lending in Indian Financial Market
Over the past few years, the concept of peer to peer lending has been slowly but steadily rising. In fact, it is emerging as a low cost source for raising funds for aspiring entrepreneurs who may be finding it hard to secure a loan from the banks.
Though on a global level, the P2P lending scene in India is still evolving, it is believed that with the Fintech revolution gaining momentum and the RBI stepping in to regulate the process, the idea will surely grow by manifolds in the coming years. What’s more, experts believe that the low interest rates also prove to be an attractive reason for the borrowers while the lenders can make some money by charging interest on the sum lent by them.
RBI Regulation for P2P Lending
Up until now, a majority of P2P platforms are being operated by individuals and various organizations that do not lie under the jurisdiction of RBI. This meant there were chances of discrepancies, thereby causing the lenders to lose their money.
Now with RBI stepping in, it has passed a rule that all the P2P lending platforms should take up the structure of a fully fledged organization which would then be perceived as an intermediary NBFC. It also stressed that these platforms should commence their functions with a minimum capital of INR 2 crores.
However, the P2P lending platform still seems to be more beneficial for the borrowers rather than the lenders since there is definitely a small percentage of risk still involved. Here’s hoping that the RBI comes up with more strict regulations such that idea of P2P lending becomes all the more foolproof for all.