Regulations as speed bumps

fintech regulations

Dear Editor,

The evolution of FinTech is changing the world of finance rapidly. Peer to peer (P2P) lending, a part of the alternate credit bandwagon, takes advantage of the various limitations of traditional banks and provides a digital solution.

Although P2P lending platforms have been in India since around 2014, it was an unregulated market until recently. The Reserve Bank of India (RBI), on 24 August 2017, categorized all entities running platforms and acting as intermediaries for facilitating P2P lending as non-banking financial companies (NBFCs). On 4 October 2017, the RBI issued the NBFC – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (P2P directions), which mandated compulsory registration as NBFC–P2P Lending Platforms (NBFC-P2Ps), and brought P2P lending activities within the regulatory regime.

Pursuant to the P2P directions, only entities incorporated as companies in India and with a minimum net owned fund of ₹20 million (US$288,230) can register as NBFC-P2Ps, and they can only act as intermediaries providing a marketplace for facilitating unsecured loans with a maximum tenure of 36 months.

They can neither lend their own funds nor can they hold funds received from lenders for on-lending on their balance sheet. Also, they cannot cross-sell other products except loan-specific insurances.

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