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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