P2P Lending

Peer 2 Peer lending is direct one to one lending with an NBFC as an intermediary.

ROLE OF INTERMEDIARY

- To find lenders and borrowers and bring them at one place

- To operate within the regulatory framework provided by RBI. It diversifies credit risk of lenders by splitting their investments towards multiple borrowers.

- As per RBI guidelines, the intermediary cannot use their own funds for lending.

P2P can be closely compared to money lending business which was pretty prominent in smaller towns a decade or two ago. However, the onus of recovery in such setup was on the Lender directly as these type of lending was usually in cash,there was no reporting to CIBIL in-case of any default.

With the new era Money lending business (better named as P2P), the onus of recovery is on the NBFC and each borrower is bound to make timely payments. Failing on timely repayments will lead to lower CIBIL score (which is very dearer to a common man today, as this impacts his/ her future borrowings).

To maintain safety of funds, each transaction is routed through ESCROW Account .Escrow account is a type of legal holding account for items, which can't be released until predetermined conditions are satisfied. Typically, items are held in escrow until the process involving a financial transaction has been completed.