- Peer-to-peer lending, or more popularly known as P2P lending, is the online financial framework that connects lenders and borrowers on an online platform without a bank acting as the third party. This lack of intermediaries, and subsequently the lower costs involved, make P2P lending an attractive option in the Indian financial sector.P2P lending is also known as social lending or crowdlending. Globally, it has only existed since 2005, but of late the numbers of players are growing.
- In India, P2P platforms provide a marketplace that connects individuals in need for credit with individuals and corporates willing to lend their funds. It uses technology to speed up the process and cut costs. Thus, the platforms provide an opportunity for the borrowers to get their requirements funded at viable rates and help lenders get the best possible return on their investment. The platforms also insist that the investment of its lenders is diversified to minimize the risk of delinquency by loan seekers.
- P2P lending is a form of crowd-funding used to raise loans that are paid back with interest by bringing together people who need to borrow, from those who want to invest. It can be defined as the use of an online platform that matches lenders with borrowers to provide unsecured loans.
- P2P platforms would be treated as non-banking financial companies (NBFCs) and regulated by the Reserve Bank of India (RBI),
- As per the guidelines, the transfer of funds under P2P lending happens through an escrow account mechanism, which is operated by a trustee. It requires at least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, to be maintained.
- Trustee gets the instructions from the Settlor of the Platform/Trust for transfer of funds who keep the accounts of the Platform.
- At ITSL, we are providing services for acting as P2P Escrow Agent which includes the operation and set the procedures of funding of, and withdrawal of funds from, the Escrow Accounts.
- All instructions for payment/withdrawal are provided to Escrow Bank only upon receipt of approval from the platform based on the lender’s approval.
