How to Get P2P Lending License in India?

P2P lending enables citizens to lend money via online platforms. Peer to Peer lending is a vast term and requires proper information. If you are looking ahead to get a P2P lending license, then you should be well renowned with all the facts mentioned in this article.

What is P2P lending?

Peer to peer lending is an online platform that joins borrowers with lenders. The borrowers here can raise the loans that are paid back with interest decided by the lender. The borrower can be an entity or an individual seeking a loan. Further, the rate of interest on the loans is mutually decided between both the parties.
Peer to peer lending is a great way for the startups and entrepreneurs who require venture funding for their business. Whereas when it comes to taking loans from banks or other financial institutions, they require a lot of documentation and charge higher rates of interest.

What is the P2P Lending license?

P2P lending is a debt financing platform that allows individuals to borrow or lend money without any interference of the intermediary financial institutions. All these companies are regulated as per the rules and regulations of Reserve Bank of India.

These companies use the online platform and are beneficial for both the lender and borrowers as borrowers can get loans at low-interest rates while lenders can earn money through the interest higher interest rates offered on the lent money.

Peer to Peer lending company’s uses technology as the main tool for commencing their business activities and are aggregators between the borrowers and lenders. They are registered as per the provisions of Companies Act, 2013 and to commence the P2P business activities in India; the company has to obtain the P2P lending license from the RBI.

It is a full-fledge procedure that requires application filing in a prescribed format along with all the required documents that would be scrutinized by the higher authorities for the issuance of the license. So, let's have a look at the requirements and procedures for obtaining the P2Plending license in India.

Requirements for obtaining a P2P lending license:

The process and activities of the Peer to Peer lending companies are regulated under the RBI act. Here are some chief features of the regulatory framework; the company should know to obtain the P2P lending license in India: 

Governance Requirements
·         A fit and proper criterion for the directors, promoters and the CEO
·         The board of members should have some members with a financial background
·         A physical business place in India

Prudential Requirements
·         Minimum capital of Rs 2 crore
Reporting Requirements:
Companies have to report Regular reports to the RBI relating to
·         the financial position of the company
·         Complaints received every
·         Loan arrangement, etc.
Loan  Requirement
The maximum amount of money a borrower can borrow is INR 1 million.
Customer interface:
·         Since customer’s data is used to assess their credibility, it is the responsibility of the company to safeguard their personal details.
·         The business activities should be transparent and should not make any type of false promises.
This was all about the frameworks of Peer to peer lending in India. Now let's have a look at the eligibility criterion to obtain a license.

What is the eligibility criterion to obtain the P2P Lending license in India?

Following are the conditions that require to be fulfilled to obtain a license:
  • The Proposed company must be registered in India
  • An individual must have managerial, technical, and entrepreneurial resources.
  • An Individual must have adequate capital to carry out Peer to Peer lending business activities
  • Directors of the company should fulfill the fit and proper criterion.
  • The company must have an operational business plan
  • The motive behind obtaining the license must be to serve in the public interest.

What is the Procedure to obtain a P2P Lending license in India?

An entity registered as a Public limited or Private limited company under the Companies Act, 2013 can apply for P2P lending license India to the Reserve bank of India. For this, the applicant has to follow the below-given procedure: 

 Step 1: Company Registration:

To obtain the license, the applicant must be registered as a Public Limited company or Private Limited Company in India. The company must have Rs 2 crores net owned funds to commence the P2P business activities.

Step 2: Filing the Application:

To get the P2P lending license in India, an applicant has to file an application in a prescribed format along with a specific fee amount to the RBI. Application is available online on the Reserve Bank of India's official website (COSMOS).

Step 3: Submission of Application:

An applicant has to submit the hardcopy of the downloaded application along with the required documents such as identity proof, registration proof, etc. to the office of the Reserve Bank of India.

Step 4: Issuance of License:

Once the applicant has submitted the hardcopy of the application and documents, it would be scrutinized by the higher authorities. If they are satisfied with the documents and application, a P2P lending license would be issued to the proposed company.

Different types of P2P Lending models:

Once you have gone through the Procedure, here are different types of Peer to Peer lending model:
Consumer lending
They provide small scale personal loans for the practices such as:
·         Wedding
·         For buying cars, scooters, etc.
·         Home repairs
·         Holidays, etc
SME lending
They provide loans to the Small and Medium-scale enterprises for the following purposes:
·         For the expansion of business
·         As a working capital
·         Asset financing.
The person who takes the loan offers his personal asset or guarantee for the grant of loan.
Property Lending
In this, the borrowers borrow the loan for their personal mortgages, residential refurbishments, and to develop commercial loans against the first charge of the residential or commercial property.

Advantages of P2P lending:

Advantages for the borrowers:

·         Loans at lower interest rates: P2P lending offers loans at lower interest rates than traditional banks and financial institutions and credit cards. A reduction of around 35% has also been witnessed in some cases.
  • Easy and fast processing: Not like banks and other institutions, P2P lending offers loans with very little documentation ad faster speed.
  • Fixed Interest rates: loans are provided at fixed rates which does not change in conditions of late payment. Therefore it is quite beneficial for the borrowers. 
  • No penalty fewer fees: the borrowers can avail loans at very fewer fees when compared with other financial institutions. Additionally, there are no such penalties for the borrowers.

Advantages for the lenders: 
  • High returns: High returns are offered to investors. These returns merely depend upon the risk taken by the investor.  
  • Variety of options: investors have a wide range of offers to invest their money in the right direction. 
  • No intermediaries: P2P lending provides an electronic platform where the borrowers can directly meet their lenders without interruption of any intermediaries. 

Conclusion: Peer to Peer lending is prevalent in countries like Frances, Italy, and Germany under strict banking regulations while in a country like India, all the working is regulated by the RBI. Peer to peer lending offers vast benefits to both the sided i.e., borrowers and lenders. An applicant can easily get registration by following the Procedure and submitting all the documents as per the requirement. They can also prefer help from an expert. 

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