Sachin V.K. Jadhav Jadhav
Music, Writing, Rubik's Cube, Philosophy. Believes in four things: Utilitarianism, Rights emanate from Duties, self-restraint makes a human and 'Vaishnav janato tene kahiyeje...'
The Reserve Bank of India (RBI) last week came out with a discussion paper to regulate the nascent but fast-growing crowd-funding and peer-to-peer (P2P) lending. There are around 30 P2P lending companies in India. Some of the well-known ones are Milaap, Ketto, Kiva, Lendbox, Loanmeet.
What is peer-to-peer (P2P) lending?
P2P lending allows an individual to lend (or borrow) money to (or from) other unrelated individual(s) without assistance from any financial intermediary like a bank, etc. This is primarily done via an online platform that connects lenders with borrowers.
What are the advantages of P2P lending?
People who may not be eligible to get loans from banks/non-banking financial companies (NBFCs) can take loans. So, people can count on these platforms if they don’t have a good credit history or are a first-time borrower. It can also allow customers to become lenders and earn interest. Also, for loans of small sizes where banks might not be very forthcoming in sanctioning small amount loans because of the cost incurred. However, it comes with risks.
What are the disadvantages?
Interest rates are higher than what a bank/NBFC may charge. Currently, it is not regulated so consumers can not approach anyone in case of distress Also, beyond the companies, there are no grievance redressal systems in place.
What are RBI’s proposals?
The Logical Indian views this as a potential sector for financial inclusion and easy credit availability. The RBI has come up with the intent to regulate it at the right time. The smooth functioning of such sectors goes a long way in the quick and legitimate flow of money in the economy.
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