P2P Lenders Fear Strict Regulations may Hurt Biz
But cos hope RBI will accommodate their views & put in place some ‘best practices’
Mumbai: The fledgling peer-topeer (P2P) lending space, which has been on a free run till now, is worried about regulations which could cripple the nascent sector which has been showing huge potential for growth. But if early indications from the central bank are anything to go by, the P2P lenders are confident that the central bank would be accommodative towards them.
“We have been interacting with the RBI for two years now — what would be best for the sector as well as investors is if they can pick up some of the best practices in the industry like it had been done in the UK and set them down as precedents and guidelines,” said Rajat Gandhi, CEO, Faircent, one of the biggest P2P lenders in India.
Gandhi explained that regulations were needed as to who could become a borrower and they should make it mandatory that terms like ‘assured returns, guaranteed returns’ should not be used by P2P lending platforms. The industry believes that similar to mutual fund investments, the P2P sector should also state that these investments have their share of risks.
Though regulations are welcome, all the P2P lending platforms believe that a cap on interest rate that could be charged and a limit on the principle amount to be lent would be extremely detrimental to the business. They said that guidelines should try to protect investor interest without affecting their risk appetite.
“The biggest boost to our business would be if the law could be amended to allow us to report default cases to the credit bureaus of the country. This would scare errant borrowers, because their credit score would get directly affected,” said Bhavin Patel, co-founder of Mumbai-based P2P platform LenDen Club. From the Sahara case, where money was being raised in the name of borrowers who never existed to the various Ponzi schemes in the chit fund business, there are a lot of questions staring at the P2P sector. Most of the players here are worried about a consumer backlash. Since unregulated, the companies have been extremely cautious about their every move. Now, with the central bank coming out with regulations, the startups are reasonably assured that their investors would have more confidence in them and their valuations would jump.
i2iFunding, a Delhi-based P2P network, ensures that a proper documentation is done for the borrower and it runs its own algorithm across 35 parameters to decide his credit worthiness. They also ensure that each lender does not individually lend more than 20% of the total money the borrower is looking for.
“For every lending, we encourage as many people to come forward and lend money. It is almost like crowdfunding. This ensures that the risk of default is diluted and it would not affect an individual lender totally. However, since most of the payments are done digitally, we keep track of the money movement and provide legal support in case of defaults,” said Vaibhav Pandey, co-founder, i2iFunding. “Though we have had a few cases of delayed payments, but are still at zero defaults.”
The industry believes that similar to MF investments, the P2P sector should also state these investments have their share of risks