Peer-to-Peer (P2P) lending is a new-age way of borrowing and investing. Instead of going to a bank, borrowers get loans directly from individual lenders through online platforms. The RBI regulates this model in India to ensure safety, but like all financial products, it comes with both rewards and risks.
What is P2P Lending?
P2P lending connects borrowers and investors via a digital marketplace. Borrowers get quick loans (personal, business, or emergency), while investors earn interest that is usually higher than fixed deposits or savings accounts.
Popular P2P platforms in India include Faircent, Lendbox, and Finzy.
RBI Guidelines for P2P Lending
The Reserve Bank of India (RBI) issued regulations in 2017 to bring P2P lending under control. These rules ensure that platforms operate transparently and risks are limited.
| Guideline | Key Point |
|---|---|
| Registration | Only NBFC-P2P companies registered with RBI can operate. |
| Investment Limit | An investor can lend up to ₹50 lakh in total across P2P platforms. |
| Exposure to Borrower | Max ₹50,000 to a single borrower across all platforms. |
| Tenure | Loans cannot exceed 36 months. |
| Escrow Account | All funds must move through an RBI-monitored escrow account with a bank trustee. |
| Transparency | Platforms must disclose default rates and charges clearly to investors. |
Potential Returns
- Investors: Can earn 10%–16% annual returns, much higher than fixed deposits.
- Borrowers: Get loans faster than banks, though at slightly higher interest rates.
Risks in P2P Lending
- Default Risk: If a borrower doesn’t repay, the investor bears the loss.
- No Guarantee: Returns are not assured, unlike FDs or bonds.
- Liquidity Risk: Funds are locked until the borrower repays.
- Platform Risk: If the P2P platform itself shuts down, recovery can be delayed.
Example
- A lender invests ₹1,00,000 across 20 borrowers.
- Average interest rate = 12% per year.
- Expected return = ₹12,000 before platform fees and taxes.
- If 2 borrowers default, net return may fall to 8–9%.
With traditional deposits giving lower returns, P2P lending is becoming attractive. RBI’s guidelines have given it legitimacy and safety layers, but investors must diversify, lend small amounts to multiple borrowers, and be prepared for possible defaults.
P2P lending can give higher returns but carries higher risk. It works best for investors who can diversify and understand that defaults are part of the model.
