Peer-to-Peer Lending Platforms Turn into NBFCs: How the Start-ups will be Affected With the guidelines yet to come in, are startups doing the victory dance too soon?
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With the RBI notifying that the peer-to-peer lending companies in India will be considered as NBFCs, the fintech ecosystem in India has received a huge boost. For the P2P lending sector to come under the umbrella of RBI, has already been seen as a move that the industry is now being taken seriously.
The announcement comes days before RBI sets out its clear guidelines for the P2P lending sector and start-ups are already rejoicing. However, with the guidelines yet to come in and the possibility of stricter rules that will restrict the sector, are startups doing the victory dance too soon?
BIZ Experiences India spoke to a few startups in the sector as they shared how the decision will boost the sector and what they need to be wary of.
Will Bring in Credibility
If there's one thing that all start-ups agree on it is that this will bring in credibility, responsibility and visibility to the sector. Most BIZ Experiencess also believe that this decision will also ensure that only serious and value driven companies can stay in this space. Both lenders and borrowers will now be able to identify and rely on these P2P lending companies, which will further help these companies to penetrate into the remotest corners of the country.
Borrowers and Lenders both will be Benefitted
A greater amount of credibility will prove to be profitable for both the lenders and borrowers. , Sharing statistics with us about the sector Brahma Mahesh Khaderbad, Co-founder and CEO of FinMomenta said that India has only 150 million people that has record on CIBIL and the rest depend on money lenders who charge very high interest rates. Furthermore, this decision will make way for low cost funding for these borrowers.
Currently, the personal loan market is estimated at $98bn and growing at 17% annually. Given the huge gap between demand and supply, the P2P sector is sure to lap up the opportunity.
Agreeing with Khaderbad on how this will give Indians the opportunity to actually utilise P2P lending start-ups, Keerthi Kumar Jain, the founder of AnytimeLoan.in, said, "This is going to unlock the true value of billions of rupees that we Indians had been saving in traditional asset class and end up probably beating inflation (in terms of returns). This is because the P2P lending would open a more reliable and transparent asset class that has the power to out beat best asset classes currently available in the market from ROI perspective."
Jain also believes that this will offer flexibility in terms of regular cash flows to lenders.
Current Requirements a Deathtrap?
For P2P lending companies to be qualified as NBFCs they need to have Rs 2 crore as net available funds and Khaderbad believes that that could be a difficult task. "We don't lend from our own funds and keeping funds aside is going to be detrimental," he said.
However, Jain believes that this part of the regulation too will bring in seriousness into the sector. "It's an important part of being an NBFC or otherwise anyone could open a website and claim to connect borrowers with lenders without any serious and long term perspective and that could be more devastating for the entire sector," said Jain.
Raising the Bar
Overall, the decision has raised the expectations of founders of P2P lending start-ups. With the P2P sector being regulated, founders also see a lot of ex-bankers willing to work with start-ups. Their domain expertise and experience, will further help start-ups establish a name in the industry. Founders further await clarity on business continuity, payment mechanism etc. But the opportunities are endless. Khaderbad said, "It will be open doors for the P2P platforms to service a huge population that doesn't have access to formal finance," said.
However, founders also have a word of caution. Stricter regulations could also kill many in the sector and thus, what they want is a balanced approach. "One should start taking this space more seriously from both lender and borrower perspective; as time has come not just to get access to loans instantly but also to convert savings into wealth," said Jain.
