Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do.

There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Friday, 29 April 2016

P2P Lending Regulations



Reserve Bank Of India ( RBI ) just released a " Consultation Paper " on P2P lending . Suggestions have to be submitted by 31 May


This paper suggests some guidelines for regulation of this brand new industry , which boasts of some 30 online lending platforms , 20 of which , got launched in 2015


Total lending on these platform in last 2 years, approximates Rs 27 Crores


I have no idea as to the number of lenders and number of borrowers


As against this , the cumulative total loans taken by some 630,000 borrowers from some 900,000 lenders in China , add up to Rs 11 Lakh*Crore from 2600 , P2P platforms !


I had only a cursory glance at the RBI guidelines but could not find answers to following questions :


*  Can " Companies " register on P2P platforms as either Lenders or as Borrowers ?

I suppose , RBI's  answer would be " NO " - even if it is a Peer-to-Peer transaction between two entities ( bypassing the regular middlemen ie: Banks )

Would that proscribe tiny " Start Up Companies " to join P2P platforms ?

Somehow , that does not sound right  !



*  Can American / European / Japanese citizens become lenders on Indian P2P platforms and lend money to Indian borrowers ?


Once again , I am afraid , RBI will say , " Sorry , No ! "


Of course , it is safe to say, " No " since RBI does not want P2P phenomenon to " disrupt the existing banking channels "


Reason ?


Countries of the world making up almost 56 % of World GDP , have 0 % - 1 % interest rates ! That covers America / Europe / Japan


In some cases , there are NEGATIVE interest rates , meaning :


Instead of earning an interest when you put your money in Fixed Deposit in those Foreign banks , in these countries , banks will charge you a small fee to " safe-keep " your money !


And banks will pay YOU some small amount for taking out loans  !


Given this scenario , it is to be expected that rich citizens of these foreign countries would just LOVE to become lenders ( to Indian borrowers ) and earn , even as low as  5 % interest , on Indian P2P platforms  !


And Indian borrowers would LOVE to take loans only from such FOREIGN lenders who have very LOW expectations by way of interest !


Remember that today , an Indian borrower would pay around 15 % by way of interest to an Indian Bank for short term loans


As against this , the " Average interest rates " on P2P platforms hover around 8.6 % globally


So allowing Foreign individual citizens to register as lenders on Indian P2P platforms , would result in a win-win situation for both !


Who knows , the amount of foreign funds arriving into India through this route ( call it FDII - Foreign Direct Investments to Individuals ) , could even exceed FDI  !


Remember that , in the past 15 months , total loans disbursed by Indian banks under MUDRA yojana  , add up to mere Rs 1.5 lakh*crore to some 5.75 crore " Self Employed " who provide jobs to 12 cr persons !


FDII (through P2P platforms) can bring in 10 times  that amount in 1 year !


And then , do our banks deserve any sympathy , with their Rs 7 lakh*crore of NPA , which they want the tax-paying Indians to make good through re-capitalization ?


Is it not about time when , if the Indian banks , could not / would not make themselves obsolete , then someone else did ?


Hiding their heads in the sand is not going to save them from the coming storm  !


PS :

#  Globally , loan default rate for P2P platforms is under 1 %

#  My suggestion ( to enable FDII ) has the potential to bring back those
    $ 501 billion that Indians have secretly stashed abroad ! No rocket
    science here !

#  FDII will raise that number of Self Employed , enormously

#  FDII will turn India into a " Low Cost Economy " , thereby boosting

    exports and taking GDP beyond 10 %


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www.hemenparekh.in  /  blogs

30  April  2016

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