Unregulated to Regulated, path ahead


We have large low income population with limited access to traditional banking facilities like deposits and loans. Which means saving their hard earned money and availability of quick credit are missing. These are the same people who get attracted to ponzi schemes for higher returns or get them self entangled in circle of debt. Multiple moneylender laws were enacted to deter such scams. However failure to replace the role of money lenders gave rise to scams such as the saradha scam. The latest law to ban Unregulated deposit schemes is another step to stop such scams from happening. With this latest law, hand loans and many other loans become illegal as they are not regulated unless it is between relatives. While we still debate about the law, let us discuss about the alternatives for such non regulated loans.

Recently RBI has created a new entity called NBFC-P2P. These NBFC companies play the role of mediator in between lenders and borrowers to facilitate the process of loan disbursements and collections. Since the lenders and borrowers do not know each other prior to this engagement, it is the responsibility of platform to assess the credit worthiness of borrower and identity of lender to make sure the credit check and KYC are complete. Regular reporting of data to RBI makes the sector easy to track and impossible for any scams. If this sector is looked more closely, then it is clear that borrowers are none other than those low income population who lack access to credit and lenders are those who are looking for higher returns since the interest rates are declining. Also the transactions are processed through a bank account and borrowers data is shared to CICs such as Transunion CIBIL, making it a win situation for borrowers to build their credit history.

Since the sector is new and lots of customer education is required, almost all P2P players are mostly regional. Going forward this trend will change and services will become global. There have been situations where lenders have realized the advantages of such setup and referred borrowers who they used to lend previously as hand loans.

In summary loans which become illegal because of the new law can become regulated and enjoy other benefits by approaching any of the existing P2P NBFCs such as PeerLend (https://www.peerlend.in).

#TransactHappiness

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