Central Banker calls for Protection

By Henry Thomas on 26th August 2015

P2P/Marketplace Lending

The deputy governor at the Reserve Bank of India (RBI) has called for more regulation of the alternative finance space. He argued that the issue will become increasingly important as time goes on, as the industry wins itself a more prominent position within India's financial sector.

Central Banker calls for Protection

Mr Mundra warned of the danger of failure and the need for stable growth:

"Though as regulator we are not concerned about the manner in which finance is raised, we are concerned about grievance redressal and disaster recovery plans so that an orderly growth of the new system can be ensured"

The deputy governor's words follow the sentiment of his boss - Raghuram Govind Rajan - who last week commented:

"One of my worries about crowd funding is when it works, it's good, but when you have to recover (the important questions are) who recovers and how does it happen, especially in an environment where enforcement is difficult."

  

Mr Mundra's concerns also covered broader issues within disruptive finance. He argued that virtual currencies are overly risky as volatility issues are too great and money laundering is too easy. Is this area, he argued the importance of global coordination as countries acting on their own could be avoided by criminals.

The questions raised here reflect broader concerns over how the industry would respond in an economic downturn - with some suggesting that the high concentration of customers with low credit ratings could cause a dramatic rise in default rates. The RBI's job is to ensure that the system is robust enough to last through the tough times, whilst also active enough to benefit India's economy.

State regulators have, at times, struggled with the emergence of alternative finance. For example, in the US, the Treasury is currently on a fact finding mission over P2P. Needless to say, regulators all over the world have a huge part to play in nurturing strong and sustainable industries, irrespective of the market in question. 

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