RBI issues guidance for peer to peer lenders

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The Reserve Bank of India (RBI) issued Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017, on 4 October. By way of these master directions, the RBI has brought peer to peer lending platforms, also known as crowdfunding platforms, within its regulatory supervision and classified them as non-banking financial companies (NBFC-P2Ps).

The master directions make provisions for the registration of existing as well as prospective NBFC-P2Ps and mention the eligibility criteria. The scope of activities of NBFC-P2Ps has been set out in the master directions. NBFC-P2Ps may: act as an intermediary providing an online marketplace or platform to the participants involved in peer to peer lending; not raise deposits as defined under company law; not lend on its own; not provide or arrange any credit enhancement or credit guarantee; not facilitate or permit any secured lending linked to its platform i.e. only clean loans will be permitted; not permit international flow of funds; undertake due diligence on the participants; and undertake credit assessment and risk profiling of the borrowers and disclose the results to their prospective lenders.

Prudential norms as well as operation guidelines have also been specified. NBFC-P2Ps are required to obtain membership of all credit information companies and submit data to such companies as prescribed under the master directions. The master directions also set out a “fit and proper” criterion and transparency and disclosure requirements as well as a fair practices code for NBFC-P2Ps.

The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley and Munich. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.