24 Questions
What is the main advantage of peer-to-peer lending for borrowers?
No need for collaterals and lower interest rates
What is the regulatory body that regulates peer-to-peer lending in India?
RBI
What is the main purpose of credit rating in peer-to-peer lending?
To assess the creditworthiness of borrowers
What is the main characteristic of reward-based crowdfunding?
Entrepreneurs presell a product or service to launch a business
What is debt-based crowdfunding also known as?
Peer-to-peer lending
What is the primary goal of charity donation-based crowdfunding?
To support charitable causes
What is the main difference between equity crowdfunding and debt-based crowdfunding?
Debt-based crowdfunding involves borrowing money
Which of the following is NOT a type of crowdfunding?
Franchising
What is one of the advantages of P2P lending over traditional bank loans?
Lower administration costs
What is one of the benefits of using P2P lending platforms?
24/7 accessibility of the platform
What is one of the disadvantages of P2P lending?
Lack of legal disclosure of risks for lenders
What is one of the advantages of P2P lending for borrowers?
Cheaper credit due to low administration costs
What is one of the benefits of P2P lending for lenders?
Higher interest rates
What is one of the challenges of P2P lending?
Lack of transparency about credit assessment
What is one of the benefits of P2P lending for CORPORATE borrowers?
No mandatory collateral requirements
What is one of the advantages of P2P lending for borrowers?
Extra flexibility in loan contracts
What is the minimum net owned fund required for a NBFC-P2P to operate?
Rupees twenty million
What is the primary role of a NBFC-P2P in lending?
Facilitating lending between parties
What is the leverage ratio limitation for a NBFC-P2P?
2
What is the maximum amount a lender can invest in a single borrower at any point of time?
50,000
What is the maximum aggregate loan amount that a borrower can take across all P2P platforms?
10,00,000
What is the maximum maturity period for a loan on a P2P platform?
36 months
What is the requirement for a lender investing more than ₹10,00,000 across P2P platforms?
produce a certificate from a practicing Chartered Accountant
What is the scope of activities of a NBFC-P2P?
undertaking credit assessment, documentation, and recovery of loans
Study Notes
Peer-to-Peer Lending (P2P)
- P2P platforms allow borrowers to raise money at lower rates without collaterals, while investors earn lucrative returns.
- Platforms provide credit ratings, credit history, and collect interest payments, charging a fee from both lenders and borrowers.
RBI's Regulation of P2P Platforms
- RBI regulates P2P platforms, categorizing them as P2P NBFCs.
- No non-banking institution, except a company, can undertake P2P lending business.
- To operate, a company must obtain a Certificate of Registration, have a net owned fund of at least ₹20 million, and be incorporated in India.
Restrictions on NBFC-P2Ps
- Cannot raise deposits, lend on their own, or provide guarantees to lenders.
- Funds received from lenders or borrowers are not shown as assets or liabilities in the balance sheet.
- Cannot sell products other than loan insurance products.
- International flow of funds is not permitted.
Scope of Activities
- Undertake credit assessment and risk profiling of borrowers, disclosing the same to lenders.
- Document loan agreements and other related documents.
- Assist in disbursement and repayment of loan amounts.
- Provide services for loan recovery.
Crowdfunding
- A concept where businesses pool small investments from many investors instead of seeking a single investment.
- Two main types: Reward-based and Equity-based crowdfunding.
Advantages of P2P Lending
- Lower administration costs and enhanced efficiency.
- No mandatory collateral.
- Cheaper credit.
- Extra flexibility compared to banks.
Disadvantages of P2P Lending
- Lack of legal disclosure of risks for lenders.
- No uniform standards for calculating profit returns.
- Lack of disclosure about platforms and borrowers.
- Lack of transparency regarding credit assessment.
Prudential Requirements
- Maintain a Leverage Ratio not exceeding 2.
- Aggregate exposure of a lender to all borrowers should not exceed ₹50,00,000.
- Lenders investing more than ₹10,00,000 must produce a certificate from a practicing Chartered Accountant.
- Exposure of a single lender to a single borrower should not exceed ₹50,000.
- Aggregate loans taken by a borrower should not exceed ₹10,00,000.
- Loan maturity should not exceed 36 months.
This quiz covers the concept of peer-to-peer lending, a platform that enables individuals to lend and borrow money without the need for traditional financial intermediaries. It discusses the benefits and services provided by these platforms.
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