Indian P2P lenders write to central bank calling relaxation of rigorous regulations

VC investment and interest has declined in the P2P space due to stricter norms and slow growth.

Source: Unsplash.

An industry body comprising of 16 peer-to-peer (P2P) lending companies has written to India’s apex bank Reserve Bank of India (RBI) seeking a relaxation of norms in this highly regulated sector.

The bone of contention for P2P companies is the limitations that RBI has put on lending and borrowing, which these companies say is stifling their growth. Last year RBI came up with directions to regulate this sector, capping lending as well as borrowing across P2P platforms to USD 14,000 (Rs. 1 million).

“In the last 18 months since the guidelines were announced, the biggest challenge being faced by the nascent industry is the lender limit of Rs. 10 lakh (Rs. 1 million). This single issue…is threatening the very existence of the industry,” wrote Rajiv M Ranjan, secretary, Association of NBFC Peer to Peer Lending Platforms, in the letter.

Ajit Kumar, founder and CEO of P2P company Rupee Circle, said the biggest agenda through this letter is to increase the investment amount for each lender that limits their investment across P2P platforms. Kumar, one of the 16 signatories of the letter sent to RBI, sees this limit as one of the key elements hampering the growth of all P2P companies.

“We believe this limit has to increase, because one million rupees is not going to lure serious investors. People who have been investing are not eagerly looking to invest in P2P because of this cap and they are going for other alternatives,” Kumar told KrASIA.

The association, through its letter to RBI, is seeking to increase the limit for lenders to invest maximum USD 140,000 (Rs. 10 million). Due to the restrictions imposed on P2P startups, VC funding in this sector has also gone down, with the exception of a few companies such as Faircent, Liquiloans, and so on.

Gurgaon-based Faircent raised an undisclosed amount of capital led by Singapore-based Das Capital and Gunosy Capital.

“Today VCs are wary of investing in P2P platforms in India, primarily because of the one million limit per lender. In contrast, other similar platforms which are originating loans and getting these funded through NBFCs and banks are operating without any other regulatory oversight and have no such obligations,” association’s letter said.

For the last six to eight months Kumar from Rupee Circle has been talking to several venture capital investors to raise money. “The feedback we have got is that they (VCs) see this cap as a big hole in this sector. Even though fintech startups have been receiving money, P2P space has dried up as long as VC funding is concerned. This space has not seen any significant VC activity,” he said.

Industry experts believe one of the reasons RBI is strict in the P2P space is that it doesn’t want to repeat the same mistake that Chinese regulators did—coming in too late with regulations. Last year, the P2P sector in China nosedived due to the lack of checks and balances leading to mass defaulting by borrowers which snowballed to founders of these P2P companies fleeing the country. With the government’s crackdown on the platforms, there are only about 100 P2P platforms left compared to over a thousand last year.

“RBI was right in regulating and making strict norms for Indian P2P companies when we were starting. But it’s almost two years since the regulations came, and we have all been following these rules to the T. If RBI relooks at the lending limit it will fuel the growth of the whole P2P sector in India,” Kumar said.