P2P lending companies change tack in bid to become NBFCs

Last October, after the Reserve Bank came out with new regulations for these companies, most of them had almost stopped lending

Peer-to-peer (P2P) lending companies are changing their business model as they migrate to becoming non-banking finance companies (NBFCs).

Last October, after the Reserve Bank (RBI) came out with new regulations for these companies, most of them had almost stopped lending.

RBI had created a special category called NBFC-P2P, in view of the proliferation of P2P entities. While mandating Rs 20 million as minimum net worth, RBI had also imposed a Rs 1-mn cap for individual lending on such platforms.

So far, a couple of these entities have got an NBFC licence from RBI. Faircent says it got the licence about 20 days earlier. “We already have a nearly 40 per cent increase in the volume of lenders and borrowers. We expect these to translate into disbursals soon. This year, we are expecting a three to four-fold increase in business,” said Rajat Gandhi, founder and chief executive officer.

Some of the other P2P companies have substantially tweaked their business model to meet RBI requirements. For example, RangDe has stopped regular P2P lending, and converted it into a donation-led loan platform. Lenders, instead of giving loans, ‘donate’ the money on the platform. The donor gets the tax benefit and has the independence to choose the next borrower, after the money gets paid back. The company will restart regular P2P lending on a separate platform, while it seeks to apply for an NBFC licence over the next few days, said Ramakrishna NK, co-founder. 

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The company has met the criterion of Rs 20 mn net worth through a group of wealthy investors. “We have shied away from taking commercial equity, as we are not promising high returns and want to continue with the philosophy of social return,” said Ramakrishna.

MicroGraam, another P2P lender, has slowed its lending. “We had stopped for the past three to four months, as we were busy meeting RBI requirements and technological aspects for (an) NBFC (licence). The limit of Rs 1 million on a lender has a limiting impact on P2P lending,” said Rangan Varadan, founder.

CHANGING THE GAME

* P2P firms had almost stopped lending after RBI changed the rules last October

* It had put a Rs 1 mn cap on individual lending, beside other requirements, such as a Rs 50,000 cap of a single lender to the same borrower

* P2P firms have been changing their structure and business models to meet the new rules. That includes raising of money to meet a higher net worth requirement

 

 “The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 1 million. The aggregate loans taken by a borrower at any point of time, across all the platform, shall be subject to a cap of Rs 10 lakh and the exposure of a single lender to the same borrower shall not exceed Rs 50,000,” RBI had said. 

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Over the past few years, several variants of online marketplaces for loans have emerged in India. In several cases, institutional finance is also being channelled through the platform. Several e-commerce websites have also been facilitating loans in tie-ups with P2P platforms. 

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P2P lending is a form of crowd-funding, used to raise loans which are paid back with interest. Interest rates on P2P platforms are linked to the risk profile of the borrower. 

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In a typical rural-centric P2P model, a website publishes a list of loan-seekers from non-governmental organisations (NGOs) or micro finance institutions (MFIs). A prospective lender chooses the borrower of their choice, makes payments through an online platform and gets monthly or quarterly payments on the loan, with six-eight per cent return. The MFI or NGO monitor the loans — they take care of disbursements and collections at the ground level, and get six-seven per cent return. The online platforms that facilitate retain two to five per cent as fee. Thus, the end cost for a borrower is anywhere between 17 and 20 per cent.