Following the US and UK models, RBI is all set to jump on the bandwagon of regulating the P2P space with strict guidelines. The norms being finalised are expected to release in a few weeks, how are the peer-to-peer (P2P) lending platforms faring? What is
their stance on this? Will the stringent norms curb the innovation?
Instead of speculating we thought why not ask them directly? So, we went ahead and contacted all the major puppeteers in this realm who were glad to shed some light on this issue without an ounce of hesitation. Here’s what the prominent players in the P2P
landscape of India had to say about the regulation.
But, before we get on to that, let’s take a quick look at the P2P market of India.
P2P Market Overview
P2P lending emerged in India around 2012 with i-Lend launching the first social lending platform. The nascent market has picked up the pace in the recent years. Peer-to-Peer
lending platforms in India disbursed around $2 Million worth of loans during the period 2013-2015.
It is true that P2P lending is still at its nascent stage and the lack of regulation is hindering its boom. But the reports of KPMG and NASSCOM seem to hold a promise of the potential hidden in this new asset class with a prophecy that the industry would
cross $2.4 Billion by 2020.
Once the issue of regulation is settled, and a sense of much-needed awareness is instilled amongst the masses, the sector is expected to hit a growth spurt which would make the industry to flourish and pass the line of $4-5
Billion by 2023.
As per Tracxn’s latest report, the Indian P2P arena has around 63 players like Faircent, i2ifunding, i-Lend, Lendbox, LenDenClub, Monexo, etc… In order to stimulate
the growth of the industry, the p2p players are seeking to create a rather diverse borrower base and break out of the image that the industry seems appealing to only those in the younger generation.
The demonetization drive was one of the primary contributing factors for the surge in the P2P activity last year. While monumental reform spearheaded by the Indian Government came as a huge blow to the lending sector, P2P
lending seems to have benefited most from it. With banks getting more acrimonious to disburse funds and cutting down the deposit rates consumers
started to look for an alternative way to acquire resources.
This temporary cash crunch also forced SMEs and MSMEs to look for different channels of financing. It is said that they were the biggest beneficiary of this new phenomenon. In 2016, almost 34% of the borrowers were entrepreneurs who used P2P to replenish
their virtual shortfall of cash and expand further.
P2P has secured a niche for itself in the lending market with it myriad of advantages like hassle-free application process, quick loan processing, lower interest rates
for borrowers when compared to credit cards and high returns for lenders. From a lack of awareness among the masses to finding creditworthy borrowers, P2P has plenty of obstacles to overcome.
Challenges in P2P Sector
When I got in touch with the prominent players in the industry with a question, “what is the biggest challenge you face?” I got a unanimous answer which was rather surprising.
They all agreed on the fact that the biggest challenge has been to create awareness about this new Fintech opportunity amongst the borrowers and lenders. While attracting borrowers seem to be comparatively easy, the lack of trust amongst the investors rather
hard to tackle.
Getting access to the credit information of borrowers and reporting defaulters to credit bureau still remains to be a hassle. The NACH Debit process which was launched to promote digitization seems like an equally cumbersome procedure with the mandatory
wet signature requirement.
In addition to all these dilemmas, the unregulated nature of the sector remains to be a dark area of the P2P landscape. As RBI is all set to roll out the norms shortly, what do the top players in the industry think of it? Let’s see a brief outlook of the
P2P market, the common challenges they face, and their view on RBI P2P regulations.
Challenges: Educating the masses and spreading awareness amongst them about the benefits linked with P2P lending.
Bhavin Patel, Co-Founder of LenDenClub feels that the RBI lending guidelines would help P2P sites cater to a much larger borrower segment called MISSING MIDDLE, which has been ignored so far and
he believes it would offer a healthy dose of much-needed confidence to not only P2P sites, but to individual lenders as well.
Challenges: Investor Education is the biggest challenge. As this is a new asset class and will take some time to pick up the pace.
Ekmmeet Singh, CEO of Lendbox states that there has been a spike in the institutional investors since RBI rolled out a draft of regulations for the P2P Sector. As P2P is a new asset class, he feels P2P sector
would take some time to pick up the pace and he firmly believes that the RBI norms would act as a growth catalyst resulting in a surge of interest amongst the borrowers and lenders.
Challenges: User education and expectations, process bottlenecks due to database downtimes and requirement of a wet signature for NACH Debit
Shankar Vaddadi, Founder of i-Lend views the peer-to-peer RBI guidelines as a progressive piece which paves way for a trajectory of growth in institutional investments irrespective of few granular
Challenges: Finding credit worthy borrowers, ensuring their timely repayments and reporting to credit bureaus in case of defaults.
Raghavendra Pratap Singh, Co-Founder of i2i Funding claims that the regulatory delays are a sense of distress among the investors. He states that the guidelines would enable rapid
growth as the operational issues such as allowing the P2P agencies to report defaulters’ data to credit information bureaus.
Challenges: Creating awareness about P2P lending amongst the masses and educating the investors on how to mitigate risk and make more returns. Enabling comparison with similar market-linked investments like the stock market, Mutual Funds, and SIPs is a major
Rajat Gandhi, Founder & CEO of Faircent states that the guidelines devised by RBI appear to be progressive and seems to safeguard the interest of all parties involved without stifling the innovation.
However, he believes that somewhere down the line, the guidelines would morph into regulations giving a major blow to the sector.
Challenges: P2P lending not being accepted as an accepted source of lending due to the lack of regulatory measures.
Vikas Mirmira, VP- Marketing at Cashkumar claims that the pending RBI regulation is the most challenging aspect. He strongly believes that the rules would instill a sense of trust amongst the masses,
making them accept P2P as a legitimate source of lending and borrowings and also put a stopper to operational issues like credit reporting.
RBI Guidelines – A Boon or Bane?
While influential P2P players seemed to look at the RBI regulations as a boon despite its shortcomings, the general impression on the deliberated guidelines seemed to be vastly different. Here’s what a few distinguished Fintech Players in India had to say
about the RBI regulations.
Timmana Gouda, Founder & MD of Whatsloan on a Linkedin Conversation said, “We last out on the early boom, delaying regulation, like SEBI is doing with crowd funding,
P2P majors in west and China are struggling with a huge drop in valuations, accounting frauds, and money laundering! Hope our P2P companies build on a solid base and self-regulate themselves.“
Madhusudan, CEO of KrazyBee stated, “P2P sector is too nascent to be regulated under the guidelines of NBFCs (as proposed by RBI in its consultation paper). Unless
Fintechs are given a certain amount of independence to innovate and flourish, the P2P industry shall suffer under stringent norms of NBFCs.“
They have raised a valid concern. The overall opinion that Indian regulators don’t appear to keep up with the fast paced world seems justified and looks as though the government is jumping the bandwagon just to play catch up with rest of the world. The process
of classifying them under NBFC rather than considering them as a nodal agency does look like an archaic practice.
So, what’s the verdict?
At the moment, regulation is the need of the hour for P2P lending sites. The delay in regulations is having an adverse effect on the funding opportunities and causing operational issues in the P2P sector, so it is high time, RBI rolled out the norms. But
if the RBI ends up taking an out-dated approach with an attempt to show some progress just for the sake of it has high chances of ending up as a disaster.
The norms have to act as a growth catalyst for the sector and nip malpractice in the bud. However, the strict regulations should not limit innovation. Hope, the apex bank manages to find a balance between the conflicting properties of stringency and growth.
Just as Umbridge said in Harry Potter, “Progress for the sake of
progress must be discouraged. A balance between old and new has to be found. We could only hope that the new RBI regulations will enable the p2p sector to move forward into a new era of innovation with its supportive regulatory measures while preserving what
must be preserved(the trust of investors and borrowers), perfecting what can be perfected(improve operational efficiency), and pruning practices that ought to be prohibited( prevent frauds and malpractices)."