How peer to peer lending and borrowing works in India?

How peer to peer lending and borrowing works in India

It is a true notion that the economy of a country is regulated by the way its people lend and borrow money. It is no doubt that before banks came into existence, many people borrowed money among themselves like relatives, landlords, etc.

This is seen especially in a nation like India where a significant portion of the population has spent the longest time without any banking system, which was offline, although.

P2P lending in India is gaining popularity at a fast pace and is considered to be a better investment alternative among people in this era of cutting-edge technology.

In this type of lending, the individuals can transact with each other without any involvement of financial intermediaries like banks and other financial institutions.

In this way, peer-to-peer lending varies when compared to traditional banks. This is a platform where borrowers get matched with the lenders who are offering to lend the required amount.

Peer to peer lending platforms provide assistance to borrowers who want a quick loan from lenders, which is at a lower rate of interest than the other direct financial institutions.

On the other hand, investors prefer this platform because they have the potential to get a higher rate of returns. It provides an ample podium to the borrowers who want a rapid speed of funding even when there is subjection to credit checks like the banks.

But the borrowers are at a bigger advantage because they can receive lower Annual Percentage Rate (APR) than those which are usually available through credit cards or other traditional ways like gold loans.

But how does peer to peer lending and borrowing work?

The below points will tell you how.

For Borrowers:

  1. Basic information should be provided and KYC (Know Your Customer) documents should be submitted online.
  2. Income documents and the bank account statements should be submitted.
  3. Borrowers should carefully read the loan terms before accepting them.
  4. After the loan terms have been accepted, it must be put to execution.
  5. The borrower can then pay with EMI’s through auto debit.

For Lenders

  1. The lenders should register themselves online via the website.
  2. They should submit the KYC documents.
  3. After the submission of the documents, they can invest their funds.
  4. After the funds are invested, the lenders can get an analysis of the investment.
  5. The lenders can now start receiving the EMI via auto credit.


The Reserve Bank of India (RBI) has set up certain guidelines to regulate the transactions on the P2P lending platform. The regulations are such that the transactions between the lenders and borrowers on the P2P platform should not exceed Rs. 10,00,000.

The individual lender should not lend more than Rs. 50,000 to an individual borrower which is at a given point of time on all the P2P platforms. The term of the loan on the peer to peer lending platform should not exceed 36 months.

The idea of P2P lending in India has quite warmed up and there are many benefits to it. For the lender, a P2P platform is a good option because instead of keeping the money in the savings account, the investors can earn ample returns. This platform is for those who are open to taking risks.

To the borrowers, a P2P platform is a good option because it offers a low interest personal loan to those who are self-employed where banks do not lend to such people. P2P platform is also good for the early age start-ups who would not consider taking loans from banks. Banks are difficult for entrepreneurs as they demand a higher rate of interest and also collateral and it is for this reason that they prefer P2P lending platforms.

Although P2P lending has been in inception in India since 2014, it has gained a lot of momentum since 2016-2017 because of the slowdown in lending by most of the banks. P2P lending in India is yet to develop where the trend and report on the defaults can be assessed only after one cycle post RBI regulations have been completed. This will probably take more than 2 years.

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