Peer-to-peer lend­ing

The Hindu Business Line - - THINK -

The RBI’s cau­tious stance in­di­cates a cal­i­brated ap­proach

The peer-to-peer (P2P) lend­ing mar­ket in In­dia is a nascent one — with a rather mod­est size of about ₹300 crore. But it has the po­ten­tial to scale up man­i­fold. P2P plat­forms fa­cil­i­tate funds for bor­row­ers who might not have got them from tra­di­tional sources such as banks, and the possibilit­y of high re­turns for lenders who take on the risk of fund­ing such bor­row­ers. If run well, P2P plat­forms can im­prove fi­nan­cial in­clu­sion in the coun­try. Since the RBI’s Oc­to­ber 2017 guide­lines, P2P lend­ing and bor­row­ing have seen strong growth.

But many P2P plat­forms are not happy with the RBI’s pru­den­tial norms that re­strict max­i­mum lend­ing or bor­row­ing by a sin­gle lender or bor­rower to ₹10 lakh across plat­forms. Also, a sin­gle lender can­not lend more than ₹50,000 to the same bor­rower. The plat­forms say that these limits are low and im­pede growth by keep­ing away high net worth and in­sti­tu­tional lenders. They also con­tend that the ₹10 lakh limit is in­suf­fi­cient for busi­ness bor­row­ers in­clud­ing MSMEs. The plat­forms have a point.

But so does the RBI. Its seem­ingly con­ser­va­tive ap­proach likely stems from a few fac­tors. One, it seeks an or­derly, cal­i­brated growth of the mar­ket in In­dia learn­ing from the bad ex­pe­ri­ence of other coun­tries. In China, hyper-growth and lax reg­u­la­tion such as al­low­ing P2P plat­forms to them­selves lend has led to a melt­down. Two, P2P lend­ing is a high-risk game with the loan be­ing unse­cured and the lender tak­ing on the risk of de­fault by the bor­rower. If in­di­vid­ual lenders lose big money, they could walk away per­ma­nently from P2P plat­forms. Also, high limits may tempt in­di­vid­ual bor­row­ers to go over­board and even­tu­ally de­fault. That said, a bal­ance be­tween cau­tion and growth is needed. The RBI can con­sider sep­a­rate limits for in­di­vid­ual and cor­po­rate lenders/bor­row­ers. While it can in­crease the limits for in­di­vid­u­als grad­u­ally, the limits for cor­po­rates can be upped to more rea­son­able lev­els soon.

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