> NBFC- Peer to Peer Lending Platform
NBFC –Peer to Peer Lending platform (NBFC-P2P) is a type of Non-Banking Financial Company which carries on the business of providing services of Loan facilitation to willing lenders and borrowers through online platform. This type of Non-Banking Financial Company is not allowed to accept deposits or lend on its own. It is to moderate the interactions between lenders and borrowers. NBFC-P2P provides services of matching the right lender with the right borrower through the due diligence on electronic platform (e-platform). It provides other ancillary services like services of loan recovery services, credit assessment services, profile verification and other related services.
> Opportunity for NBFC –P2P in India
Peer to peer lending business, also known as crowdfunding or Marketplace lending, regulated or unregulated, has its presence in number of developed countries all over the world, with its growing market size. In India the business of Peer to Peer lending has evolved with the advent of technology.
Financial services with the help of technology is going to play a major role in Indian economy due to its prominent requirement, low overhead cost and disintermediation. Commercial Banks lending process and credit facilitation services are over the counter. Sometimes it takes unaffordable time and cost to get loan from commercial Banks.
Individuals and small businesses are looking for alternate financial market and services. This financial services are expected to grow to $ 4 -5 billion market in India by 2025. The P2P lending business model is regulated by the Reserve Bank of India and recognized as Non- Banking Financial Company. Currently the business of P2P lending is emerged by Fintech companies in India. In so far as 20 Companies have been registered with RBI providing services of peer to peer lending platform. With an increase in the lenders threshold to Rs. 5 Million across all P2P Platform, E-lending and borrowing is gaining popularity.
Reasons of growing opportunity of P2P NBFC in flourishing Indian Market.
a) Easy Loan Process
b) Lowering Cost of Borrowing
c) Helping to Fund Micro and Small Sized Enterprises
d) Removal of offline agents and Paperwork
e) Negotiation between Lender and borrower
> Registration requirement of NBFC-P2P Lending Platforms in India
– Company should be Registered under the Companies Act, 2013 or in case of existing Company under previous Company Act.
– It Should have a Minimum Net worth of Rs. 2 Crore
– Scalable Information Technology Infrastructure should be in place to handle the growth in business.
– It should obtain a certificate of Registration (CoR) from the Reserve Bank of India to carry on the Business of Peer to Peer Lending Platform.
The RBI verifies the other conditions of registration i.e. the required technological, managerial and entrepreneurial capabilities of applicant to do the business of P2P Lending Platform.
After verification and satisfaction of necessary conditions and plan of business the RBI gives in-principle approval with validity of 12 months for setting up of Peer to Peer Lending Platform and to put in place all required technologies to start with the Business of NBFC-P2P.
> Permissible Business Activities of P2P Lending platforms in India
-Facilitating e-platform or online marketplace to the participants involved in Peer to Peer Lending.
– Conducting due diligence of participants.
– Undertaking Credit assessment and risk profiling of the borrowers and disclosing the same to their respective lenders.
– Obtaining Consent of Participants to access their credit information.
– Documentation of Loan agreement and other necessary documents.
– Providing assistance in disbursement and repayment of loan Amount
– Loan Recovery services for Loans originated on the Platform.
– Storing and Processing all data and information related to its activities and participants on hardware located in India.
> Prohibited Activities of NBFC-P2P Platforms
– It should not accept deposits as defined under the RBI Act or under the Companies Act.
– It should not do the business of lending on its own.
– It cannot arrange or provide Credit enhancement or guarantee services.
– It’s Balance Sheet shall not have the amount of Loan disbursed from the lenders or repayments done by the borrowers.
– It shall not facilitate the cash transaction. All transactions and fund transfers shall be only through and from Bank Accounts.
– It shall not allow secured lending on its platform.
– Cross sale of products not allowed except for loan specific insurance products.
– International Flow of fund is prohibited.
> Limitations on Transactions through NBFC-P2P platforms
Following are the norms that should be strictly adhered to by NBFC-P2P as per directives issued by RBI
– Maintenance of Leverage Ratio (Outside Liabilities/ Net owned fund) not exceeding 2
– A Lender shall not lend in excess of Rs. 50 Lacs at any point of time across all platforms to all its borrowers.
– A Lender investing more than Rs. 10 lacs across all platforms shall produce to P2P Platform a certificate of Net worth from Chartered Accountant certifying minimum Net worth.
– A borrower shall not borrow more than Rs. 10 lacs at any point of time across all platforms.
– A single lender to a single borrower shall not lend for amount in excess of Rs. 50,000 across all platforms.
– The maturity period of Loan linked to platform shall not exceed 36 months.
> Operational Compliances
a. Operational Policy and Framework:
An NBFC-P2P need to frame Board approved policy for;
– setting eligibility criteria for its participants (Lenders and Borrowers),
– determination of pricing of its services,
– setting out rules for matching lenders and borrowers in an equitable and unbiased manner,
– protection of information and information technology from unauthorized access,
– business continuity plan in case of Closure of platforms,
– addressing grievances/complaints and disposal thereof,
– setting out and maintenance of Fit and Proper Criteria of its directors.
b. Adequate Information System and maintenance thereof: An NBFC-P2P should establish adequate infrastructure equipped with information technology as the business activities are technology driven. It should facilitate availability of information and documents between lenders and borrowers and also to protect their rights and information.
-an NBFC-P2P should confirm to the Information Technology framework as stipulated by RBI direction on Information Technology for NBFC sector.
– an NBFC-P2P should have a Board approved policy for security and maintenance of Information technology system for protecting it from unauthorized access.
-A business continuity plan needs to be there to serve the loans for full tenure in case of closure of Platforms.
c. Sharing Information with Credit Information Companies(CICs):
A NBFC-P2P shall become member of all CICs and will share the credit information of borrowers on its platform on monthly basis or at regular intervals as agreed upon with CICs.
d. Disbursal of Loan through the Platforms: All loans should be processed only when the Individual lender has approved the individual borrower and the concerned participant has signed the Loan agreement.
e. Maintenance of Separate Account for Loan disbursements and Collection: All flow of funds originated through the P2P Platforms need to be done through separate Bank account (escrow account) maintained and operated by a Bank promoted trustee. All funds received from lender for Loan disbursement and all collection from borrowers for serving loans should be transferred only through the separate escrow account.
– A trust needs to be mandatorily promoted by the Bank.
– The trust will operate the escrow account for transfer of funds based on the instructions received from the lenders and borrowers via platform or otherwise.
> Disclosure Requirements
An NBFC-P2P is required to comply with following disclosure requirements:
> Reporting Requirements
In addition to compliances and reporting requirement under the Companies Act and other applicable regulation, an NBFC-P2P is required to report to concerned regional office of the Reserve Bank of India as per RBI directions.
a). Quarterly statements:
within 15 days from the end of the quarter:
– Number and Amount of Loan disbursed and Closed during the quarter
– Number and Loan Outstanding at the end of the quarter
– Amount of Fund received and held in escrow account separately from Lenders and borrowers.
– Number of Complaints received, disposed of, and outstanding at the beginning and end of the quarter separately from lenders and borrowers.
– Leverage Ratio explaining the nominator and denominator
b). Change in Management and Auditor:
Within one month from the date of changes
– Change in Registered/ corporate office, address and contact details of NBFC-P2P
– Change in Directors and address thereof.
– Change in Authorized signatory on behalf of NBFC-P2P
– Any change in Auditor and office address of the auditor of the Company.
c). IS Audit Report:
Information System Audit report of duly CISA certified external Auditor within one month of Audit report need to submitted to concerned regional office of RBI.
> Requirement of Prior Approval from RBI:
An NBFC-P2P is required to obtain prior approval from RBI in following cases of changes in shareholding or control.
– Any allotment of Shares which will take the total holding of Individual or group to 26% or more of the paid up capital of NBFC-P2P.
– Any takeover or acquisition of the of Control of NBFC-P2P, which may or may not result in change in management.
– Any change in Shareholding which will result in acquisition by/transfer to, any entity 26% or more of the paid up equity capital of NBFC-P2P.
– Any Change in Management of NBFC-P2P which would result in change in more than 30 per cent of the Directors.
– Any Change in Shareholding that would result in right to appoint a director.
About the Author
Author is CA. Shambhu Thakur, Manager at Neeraj Bhagat & Co., Chartered Accountants. He has been looking after Accounting, Taxation and Compliances of domestic as well as Multinational Companies operating in India since last 5 years. He has exposure in maintenance of Accounts and Compliances as per requirement of the business and Industry according to applicable laws and regulations. He can be reached at e-mail: [email protected] .