An Overview of Peer to Peer Lending License Peer to peer lending platform is an online platform to raise loans, which are to be paid back with interest. The borrower may either be an individual or a legal entity. The online platform may set the interest rate to be charged on the loans, or the decision may be made mutually between the parties. In the space of P2P lending, obtaining peer to peer lending license is mandatory. In simple words, we can say that Peer to peer lending is a form of social lending under which individuals can lend or borrow money. There is no involvement of any financial institution. Therefore, lenders are free to choose borrowers. This concept of lending is gaining popularity among lenders as they get a higher rate of interest. The Reserve Bank of India is an apex body that grants a peer to peer lending license. What are the characteristics of Peer to Peer Lending Platform? Peer to peer lending model is revolutionizing the global financial market and reshaping the financial industry over the past few years by introducing new innovative modules and lending services. Peer to peer lending platforms can be used, where we only need to provide the necessary information from sitting at home/office and within hours our loan will be processed and approved. Here are the following characteristics of peer to peer lending: P2P Lending platform involves online transactions The prior relationship between lenders and borrowers is not necessary On peer to peer platform, lenders can freely choose borrowers to invest in Some platforms, however, offer secondary markets where investors can sell their loans to other investors if they need to exit their positions early. Regulatory Framework of Peer to Peer Lending Platform While most of the crowd-funding- be it, equity, debt or fund-based, falls under the purview of the capital market regulator-SEBI, the P2P lending is regulated by the Reserve Bank of India. Different jurisdictions of the world treat P2P lending differently. In some countries, they are identified as banks, while in other countries, they are treated as intermediaries. Advantages of P2P Lending P2P lending platform has gained prominence in recent years with its numerous benefits for both borrowers and lenders. Here are some of the most remarkable advantages of the P2P lending in India: 1. Lesser Interest Rates One major benefit of P2P lending is the ability for borrowers to secure lower interest rates compared to what they typically get from a regular bank or credit union. P2P lenders can provide loans at a lower cost compared to traditional financial institutions due to their lack of similar overhead expenses. 2. More Lending Opportunities P2P lending allows more people, including those with a bad credit history or no collateral, to access loans that may not qualify for traditional financial services. This could help improve financial inclusion and offer loans to individuals who were previously left out of the conventional banking system. 3. Transparency & Control P2P lending platforms offer greater transparency and control to lenders and borrowers compared to traditional financial institutions. On the flip side, borrowers can review the loan specifics and evaluate them against other loan choices before making a choice. 4. Minimizes Default Risk P2P lending websites often utilize advanced methods to assess the credit worthiness of borrowers. This lowers the chance of non-payment and boosts the probability of repayment for creditors. 5. Increased Financial System Diversity P2P lending enhances financial system diversity by offering different funding choices to individuals and businesses. This could lessen dependence on conventional financial institutions and promote competition, leading to a greater variety of innovative and customer-oriented financial services. Market Size of P2P Lending It is projected that the worldwide P2P Lending Market will experience a Compound Annual Growth Rate of 28.1% between 2023 and 2032. It was estimated that in 2022, the market will grow to a value of 75.8 billion USD. It is expected that the valuation will reach 621.3 billion USD by 2032. Revenue Stream for Peer to Peer Lending Business Income sources for peer to peer lending companies consist of fees for initiation, administration, and graduated penalties for delayed payments. Investors earn income from success fees, premium memberships, and secondary market transaction fees. Extra income is generated by providing credit scoring models and financial literacy tools. Strategic alliances for generating leads and collecting debts also play a role. New trends include Open Banking for evaluating risks and incorporating alternative data for complete borrower profiles. Eligibility Criteria for Obtaining P2P Lending License The P2P Lending platforms come under the purview of the Reserve Bank of India, taking the definition of NBFCs under section 45I(f)(iii) of the RBI Act. These are the criteria fulfilled for obtaining P2P lending license to be fulfilled: The company is incorporated in India; The company has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants; The company has the adequate capital structure to undertake the business of Peer to Peer Lending Platform; The promoters and the Directors of the company are fit and proper; The general character of the management of the company is not prejudicial to the public interest; The company has submitted a plan for, or implemented, a robust and secure Information Technology system; The company has submitted a viable business plan for conducting the business of Peer to Peer Lending Platform; Public interest shall be served by the grant of CoR; Any other condition as may be specified by the Bank, fulfilment of which, in the opinion of the Bank, is necessary to ensure that the commencement of or carrying on the business in India shall not be prejudicial to the public interest. Net Worth for Obtaining Peer to Peer Lending License The aggregate exposure of a lender to all borrowers at any point of time, across all P2P platforms, shall be subject to a cap of ₹50,00,000/- provided that such investments of the lenders on P2P platforms are consistent with their net-worth. The lender investing more than ₹10,00,000 across P2P platforms shall produce a certificate to P2P platforms from a practicing Chartered Accountant certifying a minimum net worth of ₹50,00,000. Documents Required for Obtaining Peer to Peer Lending License There are certain documents required for obtaining peer to peer lending license: Certificate of incorporation MoA & AoA The company has acquired entrepreneurial and technological resources. The company must have a P2P lending platform portal. Business plan Balance sheets should be free from transactions initiated by borrowers and lenders. Process for Obtaining a P2P Lending License To obtain a P2P lending license, research local regulations, establish a legal entity, and create a compliant business plan. Develop your lending platform, submit necessary documentation and fees to the regulatory authority, and ensure ongoing compliance after obtaining approval.The process to be followed by the P2P lending businesses such as: Each NBFC-P2P, whether already in operation or planning to start, must submit a registration application to the Mumbai branch of the Bank's Department of Regulation using the specified form. NBFC-P2Ps already in operation must submit their applications within three months of the issuance of these Guidelines. The bank for P2P lending license registration shall require the condition mentioned above in the eligibility criteria. After being satisfied with the eligibility criteria already discussed above, the RBI can grant principal approval for setting up peer to peer lending platform. The in-principal approval issued by the Bank will remain valid for twelve months starting from the approval date. Within this period, the company must establish the technology platform, finalize all necessary legal documents, and provide updates on compliance with the conditions for obtaining preliminary approval from the Bank. Once the Bank is certain that the entity is prepared to start operations, it may provide a Certificate of Registration as an NBFC–P2P, with conditions as deemed appropriate by the Bank. How does the Peer to Peer Lending work? Lenders and investors can match their risk tolerance with their investments because they can select from a wide range of borrowers. P2P networks give lenders access to important data regarding the credit histories of borrowers, empowering them to make wise choices. Investors can spread their money across several borrowers to reduce risk. Through a P2P lending platform, borrowers submit a list of required papers to apply for a loan. This includes documents proving their identification, like a passport; proving their address, like a bank statement or utility bill; and proving their income, such as pay stubs or income tax returns. Borrowers could also be required to submit supporting papers and references with their loan application. Fees for Obtaining a Peer to Peer Lending License Wondering about the fees for getting a P2P lending license in India? Well, the fees for obtaining a peer to peer lending license are Rs.8 to Rs.9 Lakh. Time Required to Obtain Peer to Peer Lending License The time taken to obtain a peer to peer lending license is 9 months from the date of applying. However, the time varies in case of regulatory delay. Why Choose Enterslice to Obtain a P2P Lending License? Selecting Enterslice for a P2P lending license offers expert industry understanding, thorough assistance, and a well-established reputation. We make sure rules are followed, provide smart guidance, and handle licensing smoothly. Below it has been discussed how we will assist you in obtaining a P2P lending license: 1. Specialized Knowledge We possess a thorough comprehension of the P2P lending sector, encompassing its regulatory structure, operational intricacies, and market trends. To have this specific expertise is essential for effectively acquiring and keeping a P2P lending permit. 2. Regulatory Knowledge We are informed about the most recent regulations and guidelines released by financial authorities. It guarantees that your application adheres completely to existing regulations, minimizing the chance of delays or denials. 3. Track Record We have a track record of effectively assisting many clients in obtaining P2P lending licenses. 4. Post-Licensing Assistance We continue to provide services even after you obtain your license. They provide continuous assistance to guarantee ongoing adherence, help with regulatory submissions, and inform about any regulatory environment modifications. 5. Client-Centric Approach We place a high emphasis on ensuring client satisfaction by providing customized services that are specifically created to meet your requirements and objectives. Their focus on the client guarantees that you will get the necessary attention and support during the licensing process.
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