By Guglielmo de Stefano on Monday 25 April 2016
The Reserve Bank of India (RBI) is reportedly close to publishing a concept paper on peer-to-peer lending and will hold consultations with the Securities and Exchange Board of India (SEBI) – India’s capital markets regulator – before finalising the rules.
According to the country’s central bank, the Indian peer-to-peer lending sector has registered a relatively low level of growth in recent years, compared with other global markets. However, the regulator noticed accelerated growth over the last year, hence the decision to set out a new regulatory framework.
Deputy Governor Rama Subramaniam Gandhi issued the following statement to the Indian online newspaper Indiatoday:
“A concept note on P2P lending will be put up on the RBI website for public comments shortly. Based on the feedback, the contours of P2P lending will be decided in consultation with the Securities and Exchange Board of India (Sebi).”
The RBI claimed that it will reduce complexities and make the regulations easy to follow. At the moment, India doesn’t have a regulatory framework exclusively focused on peer-to-peer lending – as the UK does. Marketplace lending platforms are regulated by the same laws that apply to others Non-Banking Financial Companies (NBFCs) – defined as “companies registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority […]”
Referring to other kinds of NBFCs, Gandhi added:
"Instead of too many categories, can we harmonise the regulations across and reduce the number of classification. That work is going on."
As of today, India has more than 30 peer-to-peer lending platforms in operation. Undoubtedly, the Indian peer-to-peer lending sector is at an early stage in its development, with a just few companies entering into the market over the past couple of years. We’ve witnessed the emergence of pioneering players such as Kiva.org, Rangde.org, Milaap.org and Faircent.com – which was profiled by AltFi last January. Other incumbents include Lendbox, Cashkumar, i-lend and Easyrupaiya.
The Indian market shares several features with the Australian market. Both sectors are right at the start of their journeys and neither has a specific regulatory framework dedicated to any form of crowdfunding, as we touched upon last week. But inadequate regulatory oversight could prove harmful to the sector if left alone. China’s P2P sector looms large as a lesson in what could go wrong. Only last week, Alipay – the Chinese online payments giant – revealed its intention to cut all ties with local peer-to-peer lending platforms, in the wake of a number of high profile P2P scandals (headlined by the Ezubao ponzi scheme).
Will we see the regulator release a set of rules before the end of the quarter? We’ll keep you posted on the matter as and when further detail comes to light.