P2P Lenders Fear Strict Reg­u­la­tions may Hurt Biz

But cos hope RBI will ac­com­mo­date their views & put in place some ‘best prac­tices’

The Economic Times - - Economy & Companies - Pratik.Bhakta @times­group.com

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

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