India: P2P Lending Platforms: A Beacon Of Hope For Crowd Sourced Funding In India?

Last Updated: 17 October 2017
Article by Shishir Mehta, Vidushi Gupta and Malek-ul-Ashtar Shipchandler

Most Read Contributor in India, August 2019


The Reserve Bank of India (RBI) has released the Master Directions relating to peer-to-peer lending (P2P Lending) on 4 October 2017 (Master Directions). This was preceded by a RBI notification dated 18 September 2017 issued by the RBI stating that non-banking institutions carrying on the business of a peer to peer lending platform will be considered non-banking financial companies, thereby bringing it in the aegis of RBI. A discussion paper on P2P Lending was also issued by the RBI in April 2016 eliciting public comments.

What is P2P Lending?

P2P Lending platform (P2P Platform) is a platform engaged in the business of providing the service of loan facilitation (under a contract) through an online medium or otherwise, to the participants who have entered into an arrangement with such platform to lend on it or to avail of loan facilitation services provided by it. It is a form of crowd funding where lenders are matched with the borrowers to provide unsecured loans. Usually the platforms follow a reverse auction model in which the lenders bid for a borrower's loan proposal and the borrower has the freedom to either accept or reject the offer. The interest rate may be decided by the P2P Platform or by mutual agreement between the borrower and the lender. P2P Platforms undertake due diligence on the lenders and the borrowers, facilitate documentation of loan agreements, provide assistance in disbursement and repayment of loan amounts and render services for recovery of the loans originated on such platforms.

Overview of the Master Directions

Eligibility A P2P Platform should be a company incorporated in India with a minimum net owned fund of INR 2 crores (or such higher amount as the RBI may specify), and obtain a certificate of registration (CoR) from the RBI. Existing P2P Platforms have to make an application to the RBI to obtain the CoR (after complying with the Master Directions) latest by 4 January 2018 and can continue their existing P2P Lending unless their application is rejected by the RBI. As far as new entrants are concerned, RBI will grant an in-principal approval with a validity of 12 months to set up the P2P Lending business, after which, RBI would grant a CoR on being satisfied with the new entrant's readiness and compliance of other conditions.

Restrictions A P2P Platform cannot (i) raise deposits; (ii) lend on its own; (iii) provide / arrange any credit enhancement / guarantee; (iv) facilitate / permit any secured lending linked to its platform; (v) hold funds received from lenders (or borrowers, on repayment) or through escrow, on its own balance sheet; (vi) cross sell any product except for loan insurance products; and (v) have a leverage ratio of more than 2. Notably, a P2P Platform cannot permit any international flow of funds or store / process data relating to its activities and participants on hardware located outside India.

Prudential norms The aggregate exposure of a lender to all borrowers across all P2P Platforms is capped at INR 10 lakh and the aggregate loans taken by a borrower across all P2P Platforms is also capped at INR 10 lakh. The exposure of a single lender to the same borrower across all P2P Platforms is capped at INR 50,000. The maturity period of the loans is capped at 36 months.

Fund transfer mechanism The fund transfer on a P2P Platform is required to be effected through banking channels (cash is strictly prohibited) and using the modus of at least 2 escrow accounts, one for funds received from the lenders and pending disbursal, and the other for collections from the borrowers. The escrow accounts have to be operated by trustee(s) who are mandatorily required to be promoted by the bank maintaining the escrow accounts.

RBI approval The requirement of prior RBI approval in case of change of control / management of the P2P Platform is on the same lines as that applicable to the non-banking financial companies and will be required for (i) allotment of shares which result in the aggregate holding of an individual or group to 26% or more of the paid-up capital of the P2P Platform; (ii) takeover or acquisition of control of the P2P Platform (resulting in management change or not); (iii) change in shareholding, including progressive increases, resulting in acquisition or transfer of 26% or more of the paid-up equity capital of the P2P Platform; (iv) change in management of the P2P Platform resulting in change of more than 30% of the directors (excluding independent directors); and (v) change in shareholding that would enable an acquirer to nominate a director on the board of the P2P Platform. A 30 days' public notice is also required to be given after obtaining the approval from the RBI and before effecting such change of control / management.

Other requirements A P2P Platform is required to maintain credit information data and submit it to credit information companies. It is also required to make certain disclosures to the lenders and borrowers and comply with reporting requirements (which include quarterly statements containing details about amount of loans disbursed and the funds held in the escrow accounts). The Master Directions also lay down the details of 'fit and proper criteria' vis-à-vis the directors of the P2P Platform, a 'fair practices code' and a grievance redressal policy to be adopted by the P2P Platform. The Master Directions also require adequate safeguards for data security, information technology system and a business continuity plan to ensure servicing of loans for full tenure even in case of closure of the P2P Platform.


The Master Directions appear to be slightly cautious (specifically the low borrowing and lending limits of INR 10 lakh) and may deter potential participants from accessing P2P Platforms. However, RBI seems to have adopted the "better safe than sorry" approach considering how nascent P2P Lending is in India, a USD 8.6 billion (approximately) scam by a Chinese P2P Platform-Ezubao in the form of a 'Ponzi Scheme' and prohibitions on P2P Lending in certain jurisdictions including Israel and Japan. While an alternative approach may have been to restrict interest rates, RBI's perspective on P2P Lending appears to further the concept of crowd sourcing rather than creating an alternative to availing bank loans. Further, prohibitions on cash transactions and international flow of funds are expected to keep a check on money-laundering and compliance issues from a foreign exchange law perspective. Overall, the Master Directions are a positive step to regulate the fast-growing sector, however given that many new entrants into the P2P Lending business may be start-ups, it remains to be seen how many of these start-ups can meet the INR 2 crores minimum net owned fund requirement and provide effective debt recovery services.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions