P2P Lending License in India

A P2P Lending License in India allows platforms to operate as regulated intermediaries, enabling direct digital lending between borrowers and lenders under RBI guidelines.

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What is Peer-to-Peer Lending?

When people need money, they approach bank and NBFCs for a loan. But on many occasions, the loan application is rejected due to inadequate income, lack of documents or poor credit score. In such a situation, they turn to friends and relatives for help. They will approach people in their circle who know them well and would trust them to return the money. The main problem here is that people can lend and borrow only from a closed group.

On the other hand, there may be some people who are sitting on excess funds and are looking for investment opportunities. They are not satisfied by the interest rates offered by banks and NBFCs on fixed deposits and are looking for higher returns. But they do not have the skills to appraise the loan nor information on who needs funds.

Peer-to-Peer Lending (P2P lending) is defined as the use on an online platform that matches lenders with borrowers in order to provide loans. Since the transaction takes place through a website or an app, it eliminates the need for a bank or NBFC to act as an intermediary.

Scope of Activities

  • An NBFC-P2P shall –
    1. act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending;
    2. not raise deposits as defined by or under Section 45I(bb) of the Reserve Bank of India Act, 1934 or the Companies Act, 2013;
    3. not lend on its own;
    4. not provide or arrange any credit enhancement or credit guarantee. NBFC-P2P shall not assume any credit risk, either directly or indirectly, arising out of transactions carried out on its platform. In other words, entire loss of principal or interest or both, if any, in respect of funds lent by lenders to borrowers on the platform shall be borne by the lenders and adequate disclosures to this effect shall be made to lenders as part of fair practices code specified in para 12 of these Directions;
    5. not facilitate or permit any secured lending linked to its platform, i.e., only clean loans will be permitted;
    6. not hold on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans, or such funds as stipulated in RBI directions;
    7. not cross sell any product except for loan specific insurance products. It may be noted that NBFC-P2P shall not cross sell any insurance product also which is in the nature of credit enhancement or credit guarantee;
    8. not permit international flow of funds;
    9. ensure adherence to legal requirements applicable to the participants as prescribed under relevant laws;
    10. store and process all data relating to its activities and participants on hardware located within India;
    11. not deploy lenders’ funds in any manner other than as specified in these Directions;
    12. not utilize funds of a lender for replacement of any other lender(s).
  • Further, NBFC-P2P shall-
    • undertake due diligence on the participants;
    • undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders;
    • require prior and explicit consent of the participant to access its credit information;
    • undertake documentation of loan agreements and other related documents;
    • provide assistance in disbursement and repayments of loan amount;
    • render services for recovery of loans originated on the platform.
  • NBFC-P2P shall not undertake any activity other than those stated above of the RBI Directions. Deployment of investible funds by an NBFC-P2P in instruments specified by the Reserve Bank, not for trading, shall however be permitted.

Registration

  • Eligibility Criteria
    1. No non-banking institution other than a company shall undertake the business of Peer to Peer Lending Platform.
    2. No NBFC-P2P shall commence or carry on the business of a Peer to Peer Lending Platform without obtaining a Certificate of Registration (CoR) from the Reserve Bank. Provided that an entity carrying on the business of a Peer-to-Peer Lending Platform as on the effective date of these directions, can continue to do so, subject to the conditions laid down in the RBI directions.
    3. Every company seeking registration with the Reserve Bank as an NBFC-P2P shall have a net owned fund of not less than rupees two crores or ten crore or such higher amount as the Reserve Bank may specify.
  • Process of Registration
    1. Every existing and prospective NBFC-P2P shall make an application for registration to the Central Office of Department of Regulation of the Reserve Bank, in the form which will be specified by the Reserve Bank for the purpose. Existing NBFC-P2Ps shall apply within three months from the issuance of these Directions.
    2. The Reserve Bank, for the purpose of considering the application for registration, shall require the following conditions, among others, to be fulfilled:
      • The company is incorporated in India;
      • The company has the necessary technological, entrepreneurial and managerial resources to offer such services to the participants;
      • The company has the adequate capital structure to undertake the business of Peer to Peer Lending Platform;
      • The promoters and the Directors of the company are fit and proper;
      • The general character of the management of the company is not prejudicial to the public interest;
      • The company has submitted a plan for, or implemented, a robust and secure Information Technology system;
      • The company has submitted a viable business plan for conducting the business of Peer to Peer Lending Platform;
      • Public interest shall be served by the grant of CoR;
      • Any other condition as may be specified by the Reserve Bank, fulfillment of which, in the opinion of the Reserve Bank, is necessary to ensure that the commencement of or carrying on the business in India shall not be prejudicial to the public interest.

In case of prospective NBFC-P2Ps

  1. The Reserve Bank may, after being satisfied that the conditions specified under RBI directions are fulfilled, grant in-principle approval for setting up of a Peer to Peer Lending Platform, subject to such conditions which it may consider fit to impose.
  2. The validity of the in-principle approval issued by the Reserve Bank will be twelve months from the date of granting such in-principle approval.
  3. Within the period of twelve months, the company shall put in place the technology platform, enter into all other legal documentations required and report position of compliance with the terms of grant of in-principle approval to the Reserve Bank.
  4. The Reserve Bank may, after being satisfied that the entity is ready to commence operations, grant a CoR to function as an NBFC–P2P, subject to conditions as deemed fit by the Reserve Bank.

In case of existing NBFC-P2Ps

  1. Companies that are undertaking the business of Peer to Peer Lending Platform, as defined RBI directions, as on the date of effect of these directions, shall apply for registration as an NBFC-P2P to the Reserve Bank within 3 months from that date. Such companies, which have applied to the Reserve Bank for registration as an NBFC-P2P, shall be permitted to continue the business of a Peer to Peer Lending Platform till their application for issuance of CoR is rejected, subject to such conditions, including winding down of business, as the Reserve Bank may impose.
  2. The Reserve Bank may cancel the CoR granted to an NBFC-P2P, if such company –
    • ceases to carry on the business of Peer to Peer Lending Platform in India; or
    • has failed to comply with any condition subject to which the CoR has been issued to it; or
    • is no longer eligible to hold the CoR; or
    • fails to –
      • comply with any Direction issued by the Reserve Bank; or
      • maintain accounts, publish and disclose its financial position in accordance with the requirements of any law or any Direction or order issued by the Reserve Bank; or
      • submit or offer for inspection its books of account or other relevant documents when so demanded by the Reserve Bank.

Investment from FATF non-compliant jurisdictions

  1. ) Investments in NBFC-P2Ps from FATF non-compliant jurisdictions shall not be treated at par with that from the compliant jurisdictions. New investors from or through non-compliant FATF jurisdictions, whether in existing NBFC-P2P or in companies seeking CoR, should not be allowed to directly or indirectly acquire ‘significant influence’ in the investee, as defined in the applicable accounting standards. In other words, fresh investors (directly or indirectly) from such jurisdictions in aggregate should be less than the threshold of 20 per cent of the voting power (including potentialvoting power) of the NBFC-P2P.
  2. Investors in existing NBFC-P2P holding their investments prior to the classification of the source or intermediate jurisdiction/s as FATF non-compliant, may continue with the investments or bring in additional investments as per extant regulations so as to support continuity of business in India.

Documents Required to Apply for P2P Lending License

There are certain documents required for obtaining a P2P lending license:

  1. Certificate of incorporation
  2. MoA&AoA
  3. The company has acquired entrepreneurial and technological resources.
  4. The company must have a P2P lending platform portal.
  5. Business plan
  6. Balance sheets should be free from transactions initiated by borrowers and lenders.

Use WhatsApp to reach out to experts at Affluence and apply for a P2P lending license in an easy-peasy way.

How to Get a P2P License in India?

To obtain a P2P license in India, research local regulations, establish a legal entity, and create a compliant business plan. Develop your lending platform, submit necessary documentation and fees to the regulatory authority, and ensure ongoing compliance after obtaining approval.

FAQ's

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