Peer to Peer (P2P) NBFC

NBFC-P2P

Why register an NBFC P2P?

NBFC P2P is the systematic source of funding for small as well as large organizations. It requires less paperwork as the services that are provided are via an online platform.

Through NBFC P2P registration the loans can be made available to the borrowers without providing a mortgage. The NBFC P2P platform helps the lender to diversify his/her risk allowing them to reinvest their earnings across new loans.

The P2P lending platforms are now becoming very popular especially for small businesses. To avail of the services, the borrowers are required to pay the prescribed administration fees. The rate of interest (RoI) is determined by the portal. In most instances, the rates are determined mutually between the lender and the borrower.

Benefits of an NBFC P2P registration

  • Helps in attracting investors: Before NBFC P2P, only banks and financial institutes provide credit facilities, but their policy rules were limiting. NBFC P2P has helped individuals to get good returns on investments. Thus it helps in attracting more investors.
  • More alternatives for MSME/SSI: NBFC P2P lending satisfies the needs of micro, small, and medium enterprises (MSME) and /or small scale industries (SSI). In fact, 70% of all P2P loans disbursed in the year 2018 were availed by small businesses.
  • Easy loan process: The biggest cause of the popularity of NBFC P2P among businesses is the ease associated with it. The process to access loans in banks and financial institutions are often cumbersome and time-consuming. NBFC P2P lending has cut the unnecessary processes leading to speedy finances.
  • Transparency: The NBFC P2P platforms provide greater transparency. The investors have complete details regarding the background of the business.
  • Doesn’t affects the credit score: An NBFC P2P platform is the best platform for borrowers to obtain loans as they can get without affecting their credit score. The borrowers will get a clear understanding of the affordability and rate at which the loan is offered.
  • Choice: The person can choose whether he/she wants to lend to be based on the credit profile of the borrower.
  • Diversification of risk: Risk can be diversified through spreading capital across multiple loans.
  • Lower rate of interest: NBFC P2P loans offers lower interest rates because of greater competition between the lenders.
  • Minimal documentation: NBFC P2P system of lending doesn’t require a hard copy of the documents, instead the documentation process is done with minimal documents. Even with fewer documents, the applicant can avail of a loan. The process of lending and borrowing is generally done on the basis of mutual understanding between the two, the borrowers and the lenders.

About the NBFC P2P Service

This type of lending works completely online between the borrowers and lenders. Furthermore, online NBFC P2P platforms provide loans to the borrowers easily who might not be getting loans in other respects. A financial institution or an individual can become a lender at P2P lending and can earn interest paid by the business or individuals who have borrowed the money.

The NBFC P2P lending platforms are gaining popularity currently. India has about 30 P2P lending portals. Some of which are cashkumar, faircent, lendbox, etc.

The NBFC P2P process works in the following manner:

The borrower first reaches the P2P platform to determine initial eligibility. The platform evaluates the borrowers’ creditworthiness on the basis of his/her credit history. Then the borrower is assigned with, ‘loan and risk grade’. This helps the lenders in deciding how much money can be given to the borrower.

The lender receives the borrower’s profile and the investor decides how much they want to lend to each borrower. In addition, the investors can also select the rate of interest and time duration to lend the money.

Registration requirements to avail of an NBFC P2P license:

To obtain an NBFC P2P license for lending and a certificate of registration from the Reserve Bank of India (RBI), the company must be registered as a company under the companies act, 2013. It shall have the net owned fund not lesser than ₹2 crores (two crores rupees) as prescribed by the RBI. The application to obtain an NBFC P2P license is to be verified by the RBI.

On satisfaction, the RBI shall issue a certificate of registration to provide P2P lending services. All P2Ps are required to be registered with the RBI. However, an existing NBFC is not permitted to operate as an NBFC P2P.

 

Authorized business activities of P2P lending platforms in India are:

  1. Conducting due diligence of the participants.
  2. Obtaining participants consent to access their information related to credit.
  3. Providing assistance in the disbursement of the loan.
  4. Services related to loan recovery on the platform.
  5. Sharing all the information and data related to the participants.
  6. Assessing the creditworthiness of the borrowers.
  7. Facilitating electronic platforms involved in P2P lending.

Activities of NBFC P2P platforms that are prohibited:

  1. All the transactions shall be done through banking modes.
  2. Cash transactions are not allowed.
  3. It is not allowed to do business of lending of its own.
  4. It shall not accept deposits as defined under the companies act and the RBI act.
  5. The international flow of funds is prohibited.
  6. Cross-selling of products is not allowed, furthermore, it cannot provide guaranteed services and it shall not allow secured lending on the platform.

Procedure to get an NBFC P2P license

Following are the steps that one needs to follow to apply for the license. The steps are as follows:

  1. To commence NBFC P2P operations, it must apply to the department of non-banking regulation of the RBI in the prescribed form.
  2. RBI then checks all the details of the applicant such as:
    1. Whether the company is registered in India.
    2. Whether the promoters and directors of the company are proper as per RBI.
    3. Whether an appropriate capital structure is there to undertake business activities.
    4. RBI shall check all the other conditions as specified by the RBI.
  3. Once the RBI is satisfied with all the details of the application it grants the principle approval.

The validity of this approval is 12 months from the date of such grant. RBI has made it mandatory for all the existing P2P companies to apply for the license to continue as a P2P platform.

Documents required for NBFC P2P license registration

Information required to be submitted by the NBFC P2P is as follows:

  1. Whether IT infrastructure is in place – Yes or no.
    1. If yes, the following needs to be submitted:
      1. The details of the software and hardware.
      2. Latest reports of internal audit of the system and internal system and processes.
    2. If no, then the roadmap stating the timeline by which IT can be set up is to be submitted.
  2. Business model:
    1. The business model to be adopted.
    2. Proposed processes for participant authentication
    3. The procedure to be adopted for the documentation of the loan agreement.

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