Tuesday, 2 February 2016

What does P2P lending Advocate?

Peer-to-Peer (P2P) lending is a relatively new concept that has started gathering attention. P2P Lending helps all those individuals who are not able to avail funds from other sources such as banks to get in touch with Peer who may be interested in providing them small personal loans. In China alone, P2P Lending has become a very big thing with lending transactions in 2015 crossing $151 Billion.

To have a check on these systems, agencies set up various rules and regulations so that malpractices do not take place. P2P Lending firms in the US are regulated by the SEC, firms in the UK are regulated by the FCA, etc. These regulatory bodies ensure that the firms follow a set of regulations which protect all those who enlist as peers. Unfortunately, China did not have such regulations set up.

However, there are firms taking advantage of P2P lending and hence portraying it in incorrect light. For example, police arrested 21 people in relation to a Ponzi scheme that reportedly took about $7.6 billion from nearly 1 Million investors through a Peer-to-Peer lending service, Ezubao.
About 95% of the advertised investment projects were fake and over 1,000 employees are suspected of illegally taking deposits from the public, something that P2P lending does not advocate.

P2P Lending is a marketplace concept and should and only facilitate communication between borrower and lender. All investments are/ should be done directly by the lender to the borrower.

In India, while there are no regulations at the moment, RBI is actively studying the P2P lending arrangements as they are slowly gaining traction.

However, generally Companies in this space have stringent practices, KYC norms and credit checks for both lenders and borrowers before an on boarding. Further, as mentioned above, no deposits should be taken by such companies from lenders to further invest in borrowers.

We, as P2P lending platforms, have a responsibility towards the borrowers, lenders and the system to ensure that the larger objective of serving the stakeholders is effectively and efficiently met.  

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