Budget 2019: With a market size of Rs 300 crore, the Peer to Peer (P2P) lending market in India is still at a nascent stage. However, with easy transaction process, it is already a step ahead of traditional sources such as banks and the possibility of high returns make P2P lending a choicest option for investment.
“Though multiple investment options like mutual funds, equities, debt funds etc are available to customers; all investors are not equipped to take advantage of market-linked investment options; especially senior citizens. P2P is fast becoming an easy investment option for people who do not want to go for market linked investment options. An investor can easily earn between 12-18 per cent on these platforms,” said Raghavendra Pratap Singh – Co-Founder, i2ifunding.
Singh, however, added, “The P2P lending market is too small at present and might not even receive any mention in the budget.”
With GDP growth slipping below 6 per cent mark, coupled with high joblessness and liquidity crisis, the government, however is expected to take some steps in Budget 2019 to rejuvenate the personal finance sector.
“India’s GDP growth has slipped to a five year low of 5.8 per cent in January-March quarter. There has been a slowdown in credit flow in corporate and MSME sector by banks and traditional NBFCs. There is a need for government to explore all other options, which can help flow of money available with retail customers to these sectors directly,” said Singh.
In 2017, Reserve Bank of India (RBI) notified P2P as non-banking financial companies (NBFCs) and devised guidelines for the sector. While NBFC- P2P has a cap of Rs 10,00,000 both in case of lending and borrowing, further guidelines have been devised to maintain transparency and reduce default rates.
Under the RBI guidelines, P2P cannot provide or arrange any credit enhancement or credit guarantee. It cannot facilitate or permit any secured lending linked to its platform, and only clean loans will be permitted. P2P also has to ensure to the legal requirements applicable to the participants prescribed under relevant laws.
Players under the sector also has to undertake credit assessment and risk profiling of the borrowers and disclose the same to their lenders. Prior and explicit consent of the participant is required to access its credit information; and proper documentation is required both for lending and borrowing.
Since the RBI’s October 2017 guidelines, P2P lending and borrowing has witnessed growth trajectory and has potential to scale up in the coming years, provided it gets some incentives the government to fuel the growth.
“Union Budget 2019 is expected to come up with incentives and provisions to make personal finance not only popular but gain a dynamic mechanism for accessing credit, even for the ones who do not have a satisfactory credit profile or credit score,” said Singh.
Talking about P2P lending industry, Singh said, “The industry has huge potential for growth in the coming years and government should take some steps to push for the sector’s growth. P2P lending can solve problem of credit flow to MSME sector which generates maximum employment and stands as backbone to our economy. Ideally, government should make interest earned on P2P lending tax free which will attract lot of retail customers towards this sector.”