Three years back when P2P players started in India, there were no guidelines, and different models emerged. A pure, unsecured lending model where lenders extended money for deployment as unsecured personal loans. Another where players offered guarantees (including principal protection) to lenders for routing funds for lending under the platform. A third, where promoters or other shareholders brought in equity and other funds for P2P lending using their own balance sheets.

At that time, there was no restriction on the amount that lenders and borrowers could contribute or avail under the platform. Lending ranged from Rs 50,000 to a crore.

Most investors were small NBFCs, high net worth individuals, or traders looking for high returns; and the borrowers were getting any amount they wanted with no limits. Many platforms were lending to SMEs and MSMEs that were in urgent need of funds.

Life After Regulation

After the RBI guidelines, there is finally some clarity on what defines a P2P - it can only be run after securing an NBFC licence from the RBI - run strictly as a business of unsecured lending. A lender can contribute a maximum of Rs 10 lakh. A borrower cannot take more than Rs 50,000 from a single lender but can take a maximum of Rs 10 lakh spread across 20 lenders. (See RBIs P2P Guidelines).

This makes P2P lending more difficult and complex. "You have to lend to multiple borrowers from a single lender on a continuous basis. This needs a different set of skills at the backend including a technology platform and operational expertise," says Rajat Gandhi, the founder and CEO of Faircent.com that stakes claim to being India's largest P2P.

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