How to improve MSME credit using P2P lending: Allow people to give 10 times more money, firms ask RBI

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Updated: August 20, 2019 2:07:14 PM

The low lending limit gains significance as only small lenders with low lending appetite are able to operate from the platforms due to which only a limited number of borrowers are able to raise loans from such platforms.

Due to the Rs 10 lakh limit, it has also increased the cost for P2P platforms in terms of acquiring and servicing retail lenders.

Peer-to-peer (P2P) lending platforms have written to the Reserve Bank of India (RBI) governor Shaktikanta Das seeking an increase in the lending limit for high net worth individuals (HNI) and ultra-high net worth individuals (UHNI) or small retail lenders from current Rs 10 lakh to Rs 1 crore who have financial strength to lend via such platforms. “No rules have been relaxed since RBI’s October 2017 guidelines to NBFCs operating P2P platforms. If the limit is increased, it will increase P2Ps exposure and focus towards MSMEs as there are several industries not touched because of the low limit like medical equipment etc. Rs 10 lakh is not the amount that attracts lenders as their efforts are more than the returns,” Rajiv M Ranjan, Secretary, Association of NBFC P2P Platforms told Financial Express Online.

The low lending limit gains significance as only small lenders with low lending appetite are able to operate from the platforms due to which only a limited number of borrowers are able to raise loans from such platforms. This results in “lenders losing trust as multiple borrowers get partially funded or remain unfunded, creating a vicious cycle for P2P lending platforms,” the association wrote to the RBI governor in the letter, a copy of which is seen by Financial Express Online.

“Initially these regulations seemed fine because the industry was newly regulated and we wanted serious players to come in and see how industry grow and moves but now it has been more than 18 months and it is high time some relaxation has to happen,” said Ranjan.

Also read: Govt should raise credit guarantee to PSU banks from 10% to 40% to boost NBFC lending to MSMEs

The association has also asked for no limits on lending by RBI-regulated entities such as banks, both public and private, and NBFCs that have the ability and risk appetite as currently there is a lack of interest by them to lend due to the limit.

Due to the Rs 10 lakh limit, it has also increased the cost for P2P platforms in terms of acquiring and servicing retail lenders. This has further led to increased losses and high dependence on venture capital firms. The average cost of acquiring a lender is around Rs 4,000 along with ongoing servicing cost vis-a-vis average revenue from each lender is about Rs 3,000 given 1 per cent fee on the average lending amount of Rs 3 lakh per lender.

“If they cannot increase the limit then they should stop giving out new licenses. If banks can give loans without limit to companies and individuals then why should there be a limit for them to lend to P2Ps? Moreover, VC funds want to see traction because they also don’t know which side regulations will go,” said Ranjan.

Another area of a challenge due to the low limit has been that lenders understanding the complexities of P2P lending stay away as “they find it unworthy of their time and effort to lend on P2P lending platforms,” the letter said.

The RBI, on its part, according to Ranjan understands the need for the limit extension however the action has not yet been taken. “They are positive and understand this. We never got a negative response from them but somewhere we don’t see any movement happening. If we don’t hear from them then we will write to Nirmala Sitharaman,” he added. The association currently has 16 members including Ranjan’s PaisaDukan, Faircent, i2iFunding, Cashkumar, LenDen Club etc.

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