The recent crisis in China that has shaken Peer-to-peer (P2P) lending platforms across the country has forced many to take a closer look at the popular lending mode. The Chinese crisis that emerged after attempts were made to clean up the lending space, points to the need for putting proper regulatory control on these new age platforms.

What is P2P LENDING?

P2P lending is a system where money is given as loan to an individual or a firm usually with the aid of an online platform. The online platforms serve as a common ground where lenders and borrowers are matched up. This, in turn, helps in a much more personalised connection between the two parties involved in the process.

The system gained wide acceptability due to several factors such as nominal service fee charged by the platforms, the option of getting loans at low-interest rates as a borrower and the prospect of getting better returns than a savings account as lenders.

Drawbacks Of The System

However, the system also has several drawbacks. The unsecured nature of the loans means that there exists the threat of default in payment from the part of the borrowers. This has led to a large volume of outstanding debts. Also, the absence of any serious regulatory control on platforms means that they can stay aloof from any responsibility or as seen in China shutdown the operation when faced by regulatory reforms.

The Situation In India

While the P2P sector is still in its early stages in the country, regulatory bodies have started taking measures to put a proper check on them. The Reserve Bank of India (RBI) has made it clear that these platforms will be registered as non-banking financial companies (NBFCs) and provided guidelines for them.

Though currently only a handful of platforms are registered as P2P platforms under RBI, the emergence of several sites with the claim of being P2P platforms makes it necessary to put further control on them.