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What Is the Working Procedure of P2P Lending Platforms and Offerings?

Whether you are a lender – all set to lend money or a borrower going to apply for loan, you must go through the P2P lending and note down every point. By doing so, you will be able to get the clear solutions and stay away from worrying about anything.

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By Mystic Vivan
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Working Procedure of P2P Lending Platforms
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Before you become a lender or borrower, you must keep some key points in mind. The plus point is that all P2P lending platforms come under the purview of RBI regulations; while players in this domain are required to register for a NBFC-P2P License to provide P2P Lending Services. This registration process is for websites that are creating better opportunities for both the lenders and borrowers and want to earn through commission or rates. P2P lending is a big domain; while it is expanding with new players like BharatPe and CRED. If you are going to enter this domain either to lend or borrow, you must keep the following key points in mind:

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Working Procedure of P2P Lending Platforms

Being a mechanism, Peer to peer lending is the right source of connecting individuals for financial support – mainly connecting lenders to borrowers. P2P lending platforms work as an intermediary/marketplace for both lenders and borrowers. You have to register as a lender or borrower on any website that deals in P2P lending. As soon as the verification process is completed with relevant details, you will be active on the platform to borrow or lend money. Borrower will have to undergo a risk evaluation and pay a flat registration fee. As soon as the registration process is completed, investors get a list of borrowers.

You may also get some lending offers according to your loan criteria on borrower’s behalf. In some cases, manual process is required to get done. The proposals for loans are based on first come, first serve basis. Not to mention eh interest rates that vary from lender to lender or websites that is P2P Lending platforms. The loan tenure also varied – ranging from a few weeks to months – up to 3 years. As soon as the agreement is done between two parties, a legally-binding contract is signed by them. This process is digital and the loan amount will be transferred to the account of borrower. Borrower, according to the agreement, need to repay loan periodically through EMIs over the stipulated time period. In case, the borrower fails to pay an EMI as per the agreed time-frame a penalty is levied that is payable to lender directly.

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Ways to Use P2P Lending Model

If you are going to involve in this domain, as lender or borrower, you will have to complete the registration process on the website that deals in P2P lending. The recognized P2P lending platforms are in the market fulfilling your desire by providing you with complete peace of mind. They conduct a screening of the potential borrowers and lenders before allowing to participate in the business. Not to mention the KYC Process that is required to complete for verification of the borrower.

What Are the Conditions to Complete Registration for P2P?

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If you are planning to enter the domain, you need to know about the registration process. Here are some of the points to go through for successful registration process. 

  • First of all, the company is supposed to be incorporated in India with necessary technological, entrepreneurial and managerial resources to offer P2P lending services to the participants.
  • Company or website that is involved in P2P lending must have an adequate capital structure and management – mainly to undertake the business.
  • In addition to this, the company is required to submit a business plan to conduct the business of P2P lending platform. 
  • The website or company is granted a Certificate of Registration to serve in public interest. 
  •  The website that is in this domain may mention other conditions for the purpose of commencement of the business or to carry on the business in India.

For registration process, the RBI has granted in-principle approval to set up P2P lending platform. The approval is active for one year. During this tenure, the platform is supposed to put in place the technology and documentation to commence operations. RBI ensures that the P2P lending platform is functioning to commence operations and grant a CoR as NBFC P2P – subject to conditions as deemed fit by the bank.

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Know About the Scope of P2P Lending

According to experts, P2P lending is ideal option for lenders to work as an intermediary to endow users with an online marketplace or platform to the participants. 

  • According to the regulations, a lender will not raise deposit under section 45I (bb) of the RBI Act, 1934 or the Companies Act, 2013.
  • As a lender, you are not allowed to lend on your own or provide/arrange any credit enhancement or a credit assurance. 
  • You are not allowed any international flow of funds or cross-sell any item except for loan-specific insurance product. 
  • A lender is supposed to ensure that the participants stand by the legal needs that are prescribed under diverse applicable laws. 
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You need to process data concerning its activities and participants. You need to maintain storage of the data on computer and devices that are in India.

What Are the P2P Business Loan Policy

A P2P lending platform need to work on approved policy that are setting the eligibility criteria for participants, the price for the P2P services, rules to match lenders with borrows and a lot more. 

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  • A signed contract is required to complete between the lenders and borrowers for the approval and easy repayment of loan. 
  • Keep in mind P2P loans are unsecured and disclose on its website – mainly the way of credit assessment and factors. 

·       It also depends on the overview of business model, contact details and some others.

What Are the Guidelines for Participants?

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Carrying out due diligence, doing a credit assessment and risk profiling of the borrowers on the lender’s platforms are important points to consider along with disclosing the details of prospective lenders. In addition to this, the P2P lender should also obtain previous and clear consent from the participant to access their credit information and have documentation of loan agreement as well as related documents. Here, as a lender, you must help in the disbursement, repayments and recovery of the loans. The transaction is done through the mechanism of escrow account that is operated by a bank promoted trustee.

The website that is involved in the Peer to Peer lending is required to maintain two escrow accounts – for receiving the funds from lenders and for collections from borrowers. Cash transaction is not done in any way.

Clear My Doubts About the Borrowing and Lending Limits – Must to Know About

The Amount that is lent is offered with the terms of a minimum limit that can be Approx INR 1000. The maximum amount per lender is capped across all P2P lending platforms at Approx INR 50,00,000. If the lender lends more than 10, 00,000, in that case a certificate from a CA is required to certify minimum net worth of Rs 50, 00,000.

If a single lender is lending to a particular borrower cannot exceed Rs 50,000. The platform that deals in peer to peer lending is required to obtain a certificate from the borrower or lender with the statement of borrowing and lending limits are adhered to.

Know About the Repayment Timing

The maximum timing for the amounts lent under P2P lending is for three years or 36 months. Here, the website has to disclose to the lender- the details of the borrower with his/her credit score and details of the term of the loan. The P2P platform will have to disclose the details of the lender to the borrower other than the personal ID proof and contact details.

Is There Any Agreement with CIC and Others?

A P2P is supposed to become a member of Credit Information Companies or CIC; while the obligations contains submitting data, keeping and maintaining credit information, updating the information on a monthly basis to the CICs. Websites that are involved in P2P lending must file certain quarterly statements with the RBI like statement of loan disbursed, outstanding and closed during the quarter and a statement of funds held in the escrow account.

What Is the Default Status in Repayment of P2P Loans?

A website that is involved in P2P lending is responsible for the recovery of the loans that are granted through their online platforms. The Peer to peer lending platform should have a robust process to screen the participants and at the same time as updating data to lower loan repayment defaults. Websites that meet both lender and borrowers can render services for recovery of loans granted under their platform. In addition to this, P2P is also responsible for any action of service providers like recovery agents. Here, it is required to maintain confidentiality of information refer to participants that is available with its service providers.

What Are the Conditions for Registration Cancellation of P2P NBFC?

According to RBI regulations, there are some conditions that may cancel the registration. Here are some of the conditions:

  • The P2P NBFC stops persist to business as P2P lending platform or become failure in comply with conditions that are subject to which CoR is issued. 
  • If the P2P is no longer eligible to hold the CoR and fails to abide by the direction issued by the bank.
  •  In case the P2P fails to maintain accounts, publish and disclose financial position as required under the law or order or direction issued by the RBI.

The registration may be cancelled if the P2P lending platform fails to submit or offer for inspection books of account or other relevant documents at the time demanded by the RBI.

You are advised to focus on the key points and you will surely moving right track of success either as lender or borrower. Going through the information and every detail is important.

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