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Peer to Peer Lending License

Peer to Peer (P2P) is a kind of lending or it can be said that it is an online platform to raise loans that are to be given back with interest and there is no involvement of Financial institutions, therefore lenders are free to choose borrowers. Both either an individual or legal entity can borrow the funds, and the rate of interest can be set or charged by the online platform or otherwise can be mutually decided between the parties by way of an agreement. P2P lending is considered the best way of lending as in starting it is very difficult to find any venture capitalist.

What is Peer to Peer Lending License?

Since P2P lending which is having an online platform is governed by the guidelines of national banks. They must obtain their License. It benefits both lenders as well a the borrowers. For individuals to commence activities of P2P online, then they have to obtain a license from license or registers themselves on the website, and thereafter P2P lending platform carries out due diligence and approves the application for participation in lending/borrowing activity.

01

P2P lending involves online transactions.

02

It is not necessary to have a prior relationship between the lender and the borrower.

03

On the P2P Online Platform, lenders are free to choose borrowers to invest in.

04

There is no direct intermediary negotiating interest rates or amounts.

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For Borrowers

  • Pros of P2P lending include a lower rate of interest involves, and also there is a fixed rate of interest, then customers are provided with the digital experience of facilitating the rapid flow of transaction and there are Lower fees involved.

  • Cons of P2P includes as compared with banks, it involves less/low amount of loan, and there is less security involves, also sometimes it happens that the number of borrowers is more than the number of lenders.

For Lenders

  • Pros of P2P lending include higher returns, it involves a wide variety of options available to put their capital into, and direct communication with buyers is involved.

  • Cons of P2P includes returns in case of P2P is lower as compared to a publicly-traded index fund.

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There are the scope of activities that are involved under P2P lending and they are as follows -

  1. Act as an intermediary
  2. P2P lending platform is not permitted to lend on its own
  3. Not permitted to arrange credit enhancement/ guarantee
  4. P2P lending platforms do not possess the power to permit any secured lending.
  5. Any other financial product cannot be sold.
  6. The international flow of funds cannot be permitted
  7. It is mandatory to adhere to all mandatory legal norms
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  1. Consumer Lending This includes loans for cars, self wedding, holidays, home repairs, etc.

  2. Small Business (SME) Lending Small Businesses loans are given to small businesses for the following purposes
    - Working Capita
    -Business Expansion
    -Asset Finance
  3. Property Lending This is considered secured P2P lending. Generally, the loan is borrowed for [personal mortgages, Buy-To-Lets, Residential Refurbishment, and developing commercial loans
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  1. The company should be registered in the country as a Private Company or Public Company with the principle objective of financing.
  2. Minimum net owned funds as described by the national bank.
  3. Website/Mobile app workflow
  4. The online application is available on the national bank website.
  5. Submission of a hard copy of the application along with attached documents shall be submitted.
  6. The License will be granted only after vigilant inspection of the application and documents attached with it.