CHALLENGES AND

OPPORTUNITIES IN
PEER TO PEER
LENDING – INDIAN
PERSPECTIVE

Name : Kartikeya Kodkani

Disclaimer: The views and opinions expressed in the essay are those of the author and do not
necessarily represent the views of the RBI.
 Challenges and Opportunities in Peer to Peer Lending

“Banking is necessary; banks are not”

-Bill Gates, Founder of Microsoft

Technology is challenging every sector in the economy. The advancement of information

technology, people’s increased trust in technology and power of collaboration have democratized
the economy and created a new economic system called Sharing Economy or Peer Economy. The
Peer Economy has given opportunities for risk taking and innovative start-ups to challenge well
established but conservative organisations. Uber, Ola which work on peer to peer model
disrupted the taxi industry without owing a single cab. The peer economy has brought disruptive
innovation in the financial sector also. Financial Technology (Fin-tech) companies have
empowered the masses by providing alternative finance outside traditional financial institutions.
Fin-techs have democratised the finance industry. Crowdsourcing which allows people to raise
funds from a large number of small investors through internet is one such example for the
financial democracy and Peer to Peer lending is another example.

Peer to Peer platforms match borrowers and lenders on their platforms. People sign up to the
platforms either as a borrower or as a lender. Some platforms take registration fee from both
lenders and borrowers. Faircent, an Indian P2P company takes one time registration fee of
₹1000/-. The borrower submits an application for a loan after the registration. The platform
assigns an interest rate after assessing the profile of the borrowers and lists them on the platform.
This process is completed within a few hours. The platforms can also shortlist borrowers
according to lenders’ configuration. Some platforms give freedom to lenders to select their own
borrowers. A borrower can be funded by an individual or by multiple lenders. Once the funding
is finalised, a legally binding agreement among the parties is formalised. Some platforms follow
reverse auction model wherein a borrower can put forth his loan requirement for bidding for a
specific period of time. Here, a borrower gets a chance to avail loan at a lower interest rate.
Interest rates on some platforms move according to the supply and demand of credit.

Emergence of the Industry

The rapid growth of both internet and e-commerce companies in developed countries paved the
way for the emergence of Peer to Peer lending industry. Zopa, the UK based company is the
world’s first platform in the P2P lending space which started its operation in 2005. Zopa has
grown rapidly since then, and is planning to apply for a banking license. Lending Club, which
started as an application on Facebook in 2016 in the US has become the world’s largest P2P
 1 2
lending platform in 2017 . Lending Club disbursed around $30 billion dollar of loan so far . The
stringent credit rules by banks and hawkish monetary policies of central banks of the developed
countries after the Global Financial Crisis of 2008 provided fillip to the industry. As per Price
Waterhouse Cooper’s (PwC) analysis, the global market could reach $ 150 billion or higher by
2025.

The Indian P2P industry is still in its infancy. India currently has around 30 start-up P2P lending
3
companies with a current loan book of USD 25 million compared to China which has 2100
3
platforms with a lending book around 100 billion USD . The Industry in India over the next five
3
years is pegged at around 4 billion USD (160 times the current lending size) . Faircent,
i2ifunding, Rupaiya Exchange, Lendbox are some of the major players in Indian P2P lending
industry. The Indian industry is still in the beginning of its journey. One of the largest P2P
platforms in India, Faircent, started its operations in 2013, and disbursed around ₹ 17 crore since
its inception.

Composition of Survey

Due to limited number of surveys on Indian P2P platforms, this author conducted a survey of
Bengaluru based P2P platforms to know the industry and to assess the impact of regulatory
guidelines of Reserve Bank of India (RBI). There are around 30 start-up P2P lending companies
as per the RBI’s consultation paper on Peer to Peer Lending. This author surveyed five P2P
companies which is approximately 16.6 % of the overall P2P companies in India. The companies
which were surveyed are Cash Kumar, Loan Meet, Credifiable, Finmomenta (Tachyloans), and
Easy2Lend. The companies differed in their method of operations. Easy2Lend restricted its
operations only to Bengaluru and manually verifies the documents uploaded by the borrowers.
Cash Kumar uses the help of Perfios, a fraud check company in India to verify the authenticity of
the documents uploaded by the borrowers. Credifiable does not allow individuals to lend on its
platforms, it allows only Non-Banking Finance Companies (NBFCs) to lend money on its
platform.

a. Participant

Questions were asked to know the age and occupation of the participants on P2P platforms. 100
percent of the respondents said, the age of the borrowers on their platforms ranges from 20- 35
years and that of lenders ranges from 36- 50 years. 80 percent of the respondents said, both the
borrowers and lenders are salaried people and 20 percent of the respondents said only HNIs lend
on platforms and both salaried and small Business people borrow money on the platform.

1.https://www.investopedia.com/terms/p/peer-to-peer-lending.asp

2. https://www.lendingclub.com/info/statistics.action

3. P2P lending in India: A New Wave by PWC Report.

b. Purpose of Lending and Borrowing

Questions were asked to know why people lend and borrow money on P2P platforms. 60 percent
of the respondents said, people lend money because the return on investment is better than the
return on fixed deposit of banks, while 20 percent of the respondents said that the returns on
investment in P2P platforms is between the return on investment in mutual fund and return on
investment in equities. Remaining 20 percent of the respondents opined that people invest
because return on investment is better than the return on Fixed Deposit of banks and also due to
the better availability of creditworthy borrowers on the platforms.

Below is a graphical representation of reasons to borrow on Peer to Peer lending platform

Why Do People Borrow on Peer To Peer

Lending Platform?
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Lower Interest Rate and Greater Access to Credit Quicker Loan Disbursal &
Greater Access to Credit Greater Access to Credit

c. Interest Rates

When respondents were asked about prevailing interest rates on the platforms, 80 percent of the
respondents said the interest rate ranges from 15 percent to 25 percent and 20 percent of the
respondents said, the interest rate ranges from 10 percent to 15 percent.

d. Opinion on RBI Regulation

On being questioned about RBI’s cap on aggregate exposure of both lenders and borrowers to
₹ 10,00,000/- across all the platforms and cap on exposure of a single lender to the same
borrower across all the platforms to ₹ 50,000/-, all the respondents opined that both the limits are
too low.

The graph in the next page represents the respondents’ responses to the question about their
expected limit on exposure of a single lender to the same borrower across all the platforms.
What do you think should be the cap on exposure of a lender to
the same borrower across all P2P platforms?
70%
60%
50%
40%
30%
20%
10%
0%
Rs. 50000/- Upto Rs. 3 Lakhs Upto Rs. 5 Lakhs There should be no cap (Link
it to income of lenders)

e. Other Observations

Some questions were asked to know the bottlenecks, opportunities to P2P platforms in general
and threats to the existing P2P platforms in particular. One question was asked whether the
government and the RBI should create awareness about P2P lending platforms among common
people. 40 percent of the respondents said the government and the RBI should create awareness
as it leads to financial inclusion, and another 40 percent of the respondents said it is the
combined responsibility of the platforms, RBI, and the government to create awareness as it
leads to financial inclusion. The remaining 20 percent of the respondents said creating awareness
is the sole responsibility of the platforms.

When question about the enabling factors which will help the platforms to flourish in India was
asked, 80 percent of the respondents said the growing use of online platforms (such as wallets)
for payments among common people and the trust of investors and common people created by
regulation of the RBI will help the sector to grow in India. 60 percent of the respondents said that
the ability of the P2P platforms to provide easy access of funds to the large number of micro
borrowers who were kept out of the formal banking sector was its Unique Selling Point (USP).
20 percent of the respondents want the RBI to allow the platforms to guarantee loans to certain
extent and another 20 percent of the respondents want the RBI to create a committee to address
the problems faced by P2P platforms.

The respondents’ responses to the question about bottlenecks to the growth of Peer to Peer
lending in India are represented graphically in the next page:
 Which of the Following Do You Think is a
Bottleneck to the Growth of P2P Lending?
120%

100%

80%

60%

40%

20%

0%
Increasing RBI's Lack of Lack of Proper Low Level of
Default Rates Regulation May Awareness Digital Internet
by the Hamper Among Infrastructure Penetration in
Borrowers Innovation Common India
People

Challenges
The challenges faced by the platforms can be divided into two categories: present challenges and
distant but definite challenges. Both the regulation and market conditions are currently
challenging P2Ps. Rapid changes in market will pose future challenges to the platforms.

A. Present Challenges Created by Regulation

1. Limited Space in Lending due to Caps

As per the directions of the RBI, no lender can lend more than ₹ 50,000/- to the same borrower
across all P2P platforms. This has hampered the existing business of the platforms. All
respondents said, the limit set by the RBI is too small. 60 percent of the respondents said, there
should not be any limit on exposure of a lender to a borrower. They said, the limit should be
based on the income of lenders. The 20 percent of the respondents want the exposure limit in the
range of ₹ 1 lakh to ₹ 3 lakh and the remaining 20 percent of the respondents want the limit in
the range of ₹ 1 lakh to ₹ 5 lakh. The respondents agreed that capping the exposure limit based
on the income of an individual is quite difficult. But, if the RBI does not change the limit in
future, the platforms will face challenges in offering different loan products in short period of
time to different set of borrowers. For example, a borrower can borrow ₹ 1 lakh to ₹ 2 lakh on
i2ifunding for business purpose. Now, i2ifunding has to find 2 to 4 lenders to fund the
borrower’s requirement of ₹ 1 to ₹ 2 lakhs which will certainly increase the time involved in
disbursing the loan though this will mitigate the risk of a lender by restricting his exposure to a
single borrower.40 percent of the respondents think people borrow because of quicker loan
disbursal. Disbursing loan in short span of time is one of the unique features of P2P platforms.
The cap on lending is counter-productive as it causes a lot of undue delay in the borrower getting
his funding requirement from multiple lenders for measly amount.

The RBI has put a cap of ₹ 10,00,000/- on aggregate exposure of a lender to all borrowers at any
point of time, across all P2Ps. This has become a major challenge for the platforms. The
platforms are still unknown to many people in India. So far, only digitally active risk taking
people are voluntarily lending money on the platforms for better returns on their investment. But,
the amount of money lent by these lenders are still small in number. High Net worth Individuals
(HNI) were also lending money on the platforms for higher returns. Some of the start-ups used to
request HNIs to lend on their platforms. The lending by these HNIs was more than that lent by
the other class of lenders. The restrictions on aggregate exposure of a lender to all borrowers will
be a great deterrent for HNIs lending on these platforms. P2Ps will face difficulty in doing
business if HNIs stay away from lending. It was observed during the survey that an HNI used to
lend around ₹ 50,00,000/- to ₹ 1 crore on a single platforms due to absence of the restriction.
After the guidelines of the RBI, the platforms need to find five to ten different lenders to get the
same ₹ 50,00,000/ to ₹ 1 Crore. The cap on aggregate exposure of a lender has resulted in the
platforms spending a lot of time and money in finding lenders, and fulfilling the requirement of
borrowers. This cap has become detrimental to start-ups in the industry.

2. Small Number of Bank Promoted Trustees

As per RBI norms the fund transfer should happen through an escrow account which will be
operated by a trustee promoted by a bank maintaining the escrow account. At present, there are
few trustees promoted by banks and they may resort to charging high fees for managing the
escrow accounts. To avoid such a situation, all the participants of the survey suggested that RBI
should also allow SEBI registered trustees for P2P transactions. The participants also expressed
concern that some banks are not offering escrow services to P2P platforms due to low volumes
and small ticket sizes of the transactions which are not economically viable for the banks.

3. Restriction on Risk Cover Assurances

Central banks of the developed countries lowered interest rates after 2008 crisis and some central
banks also adopted Negative Interest Rates Policy. The crisis compelled banks in the developed
countries to offer low interest rate on deposits and charge high interest rates on loans. This
interest rate regime helped the sector boom in these countries. But, traditional financial
institutions in India are still offering good returns on deposits. Commercial banks are offering
interest rates of 6.25 to 7.5 per cent per annum, and Payment banks and Small Finance Banks are
offering little higher interests on their deposits ranging from 7.5 to 9 percent per annum. Indians
4
by nature are considered risk averse . Lending money on P2P platform involves risk compared to
keeping a deposit in banks or financial institutions. Some lenders used to lend on the platforms
because they could get high returns with some protection against risk of default by the
4. Leadership and Creativity in the Indian R&D Laboratories: Examining the Role of Autonomous Motivation,
Psychological Capital and Justice Perceptions. Indian Institute of Management, Ahmedabad W.P. No. 2013-11-09.
borrowers. So, some P2P platforms created a fund to insure the partial amount of loan lent by
lenders. British platforms typically feature protection funds. Ratesetter in England has a
provision fund to compensate lenders in case of default. In India, Rupaiya exchange had
Lender’s Protection Scheme to protect lenders. This helped the platforms to gain trust of lenders
by mitigating the risk in case of default by borrowers. In adherence to RBI guidelines restricting
platforms from giving assurances for recovery of loans, the platforms will find it difficult to get
new lenders. They may even lose some of the existing lenders who used to lend because of the
assurance clause which will eventually erode the existing lenders base of the platforms.

B. Present Challenges Created by Market Structure

1. Need of Huge Investments

A significant variation in the cost of building a P2P platform is observed during the survey. Start-
ups which built their platform on its own spent around ₹ 25 to ₹ 30 lakhs. But, the start-up
Finmomenta which built the platform taking help from the outside developers spent
approximately ₹ 1 Crore. Finmomenta also incorporated its own risk matrix technology on its
platform. The company (Easy2lend) which restricted its operation only to Bengaluru spent only
₹ 10 to ₹ 15 lakhs on building its platform. It is evident from the survey that cost of building the
platform depends on nature of operation and method of building it. Good customer data in Peer
to Peer lending space is still not available. P2P investments, like any other investment, can go
bad. Therefore, P2P lending firms have to invest in Big Data-enabled underwriting algorithms,
which go beyond standard credit bureau reports, and incorporate social data from the borrower’s
LinkedIn and Facebook profiles. This information helps the firm’s algorithms to accurately
predict the risk associated with every borrower. This will certainly increase the cost burden of
P2P platforms. The cost may not affect all the platforms but it will become a major concern for
those platforms which are doing business below break-even point.

2. Problem of Low Literacy Rate

The success of any financial product depends on financial literacy. Success of P2P platforms
depends on not only digitally literate but also financially literate people. The financial literacy
rate will be low if a country remains unbanked or under-banked. The major part of India is still
unbanked. The platforms will face difficulty in reaching to the masses until the country achieves
a high financial literacy rate.

Distant but Definite Challenges

1. Competition from New Age Banks and NBFCs

There are many NBFCs, foreign and private sector banks which are using technology extensively
in their operations. Many banks are implementing artificial intelligence (AI) in their customer
service, for example an interactive humanoid named IRA (Intelligent Robotic Assistant) by
HDFC. The institutions which are presently using AI for customer services will certainly use
advanced technology in lending in future. These institutions may start competing directly with
the platforms by learning their business model and adopting leading practices once they find that
P2P platforms are making profit from those customers who were denied loans from these
institutions. The technology will also enable them to disburse loans expeditiously.

2. Bad Debt from Overzealous Lending

5
There are over 20 lakh cases of bounced cheques pending in Indian courts . This symptom of bad
credit behavior among Indians could affect P2P lending business. Aggressive lending and high
risk-taking by the lenders for reaping high returns caused the delinquency rates in US platforms
to shoot up. It is also found during the survey that all the respondents see the rising default rates
as one of the bottlenecks to the growth of the platforms. Rising default rates will affect trust of
the lenders. This situation may cause major trouble to P2Ps in future, and it could attract more
stringent guidelines from the regulator. Only future can tell how the industry will face this
possible challenge.

Opportunities
There are many players in Indian lending space: traditional banks, NBFCs, Small Finance Banks
and money lenders etc. P2P lending platforms have some features which give them an advantage
over all the existing players in lending business. Changes in Indian economy, demographic
advantage will also provide huge opportunities for the platforms to prosper. The regulation by the
RBI will avoid unhealthy practices and also restrict the proliferation of illegal platforms which is
good for the industry itself.

1. Rise of Millennials

As stated by the respondents of the survey, age of borrowers on the platforms ranges from 20-35
years whereas the age of the lenders ranges from 36-50 years. It is also observed during the
survey that only salaried people are allowed to lend and borrow across all the platforms. By
2020, India will be the youngest country in the world with 64 per cent of its population in the
6
working age group . It is a common tendency among young professionals to take risks for better
returns. So, as the salaried and young population keeps increasing in India it will help the
platforms to attract both borrowers and lenders in the forthcoming years. This demographic
dividend in India will certainly make the industry to grow in the country.

2. Edge Over Micro Finance Institutions (MFIs)

The RBI has put a cap of ₹ 50000/- per borrower. Although this limit seems restrictive for the
platforms, they can still capitalise on it. People who need small amount of loan with low income

5. http://www.newindianexpress.com/thesundaystandard/2017/jun/11/dishonoured-cheque-may-send-you-to-jail-
1615173.html

6. http://www.thehindu.com/news/national/india-is-set-to-become-the-youngest-country-by-2020/article4624347.ece
are now borrowing money from either MFIs or money lenders by paying usurious interest rates.
Some of these borrowers may be creditworthy but unable to qualify for loans from traditional
banks. Due to high borrowing cost from the banks, MFIs are charging high interest rates ranging
7
from 24% to 26% per annum . But, the interest rates on P2P platforms are usually market driven
or dependent on the risk profile of the borrowers. 80 percent of the respondents during the survey
said, the interest rate on their platforms ranges from 15 % to 25 %. Faircent, India’s leading
platform also charges maximum interest rate of 25% which is lower than that of MFIs. The
relatively lower interest rate on the platforms is an opportunity for them to attract customers of
MFIs who generally live in semi-urban or rural places. The platforms can convince the
government to create awareness about them among common people using Common Service
Centres (CSC) throughout India especially in semi-urban and rural places. This will be a win-win
situation for both the government and the platforms. The platforms will get customers and the
government will make progress in its financial inclusion endeavour.

3. Underserved Creditworthy Borrowers

There are some borrowers who have regular income but do not have income proofs. They are not
able to borrow money from any of the formal financial institutions due to unavailability of
documents. These borrowers include small vegetable vendors, students who are doing part-time
jobs, delivery boys, people working in shops or other unorganized sector etc. Micro Housing
8
Finance Company (MHFC) is one of the companies in India which has successfully served these
borrowers by giving them housing loan of ₹ 3 to ₹ 7 lakhs using unique credit assessment
method. MHFC had over 7,000 customers in March 2016 and only 35 have defaulted so far. That
makes for 0.5 per cent of non-performing assets (NPAs). Initially, P2P platforms can serve small
portion of these borrowers keeping them in high risk category. The platforms can assess the
credit risk involved in lending to these borrowers using advanced algorithms or big data
analytics. This may not be an immediate opportunity for the platforms which are still in nascent
stage. But, they can tap this market as they evolve in their business. Serving these borrowers may
become lucrative business in future.

4. Small Loans to Studious Students

Advancement in technology, algorithm, and behavioural economics is helping companies to

accurately assess the risk and find future customers. Indian platforms can use the innovative
technology to find creditworthy borrowers of the future. The US based P2P company SoFi
(Social Finance) categorised some of the borrowers as HENRYs (High Income Not Rich Yet) to
provide student loans to high potential graduates of top universities. The basic assumption is that
the graduates from top universities will earn good income once they pass-out from college and
will be able to pay their debt. India has also got poor graduates who cannot even pay counselling
fee. For example, IIT charges a counselling fee of Rs.60000/- before admission. There are poor
9
students who face struggle to pay the counselling fee also . The banks can grant education loans
7. http://www.livemint.com/Money/PuQ6tbCp3IiYHWxd1MH5CP/What-to-expect-from-small-finance-banks.html
8. http://www.thehindubusinessline.com/blink/work/a-roof-for-every-budget/article9712546.ece
9. http://www.hindustantimes.com/india/iit-jee-cracked-poor-students-now-struggle-for-counselling-fee/story-
Qp4HOkCZdGJ3znFNu0J2AK.html
to these students only after they get admission to the institution which happens after counselling
process. P2P platforms can play a major role in servicing these poor but potential students of
prestigious institutions of India who have tremendous future earning capability. This is tapping
the future market. A student, who uses P2Ps once will certainly start using it again once he starts
earning and will remain faithful to it.

5. Loan Auctioning : Bargaining Power to Small Borrowers

Only large companies are able to negotiate with traditional banks on terms of loans but P2Ps
have given bargaining power to small borrowers also. They can put their loan requirement for
auction on the platforms. This gives borrowers an option to get lower interest rates which is not
possible with banks. This unique feature has given P2Ps an advantage over both traditional banks
and Small Finance Banks. If the platforms popularise this model on a large scale, they can take
over significant share of borrowers from both traditional banks and niche banks.

6. Freedom to Lenders to Choose Returns

No other asset class gives freedom to investors in choosing returns according to their risk
appetite. But, the customisation of portfolio option in P2Ps enables the lenders to select their
own borrowers according to their risk bearing capability and returns expectation. Aggressive
lenders can choose risky borrowers for better returns whereas conservative lenders can choose
less risky borrowers. This feature gives the platforms an opportunity to attract different type of
lenders. Investors who are investing in different assets such as stocks, derivatives, Futures and
Options (F & O) etc are also looking for new investment avenues and they can become lenders
on P2Ps. The platforms can also get significant number of lenders if they market or advertise
themselves through these brokerage firms which have a huge customer base.

7. Peer to Peer Lending : High Returns with Moderate Risk

Lenders on the existing P2P platforms are getting good returns. 80 percent of the respondents
said, the return is higher than that of bank deposits. 20 percent of the respondents said, the return
lies between the returns on mutual fund and returns from investment in equity markets. It is also
observed that the default rate among the surveyed platforms ranges from 1% to 3%.Two reasons
are mainly attributed to these low default rates: (i) low volume of transactions on the platforms is
helping the platforms to track any possibility of loan default by borrowers . (ii) all the platforms
are allowing only salaried people to borrow money. The platforms with low default rates and
high returns will not find any difficulty in attracting lenders who are looking for good returns
with minimum risks. But, the success in attracting the lenders depends upon the platforms
capabilities. If the platforms market themselves by advertising effectively on YouTube, Facebook
or Twitter, they are more likely to become a new asset class in future.
 8. Providing Working Capital Loans to Micro Enterprises

P2P platforms disburse loans with minimum paper work in a short period of time. So, these are a
better medium for availing short term loans such as working capital loan. Indian micro
enterprises need working capital to run their day to day business. But, these enterprises are
denied working capital loan from Indian banks. Credit demand from these borrowers is driving
10
double-digit loan growth at NBFCs . This is a golden opportunity for P2P platforms also and
they have an advantage over NBFCs.P2Ps are able to provide loans instantly as compared to
NBFCs as their lending process is more technology driven.

9. Collaboration: An Opportunity to Flourish

Compete or collaborate are two successful strategies in the business world. P2P platforms can
sign a cross-referral partnership agreement with established banks to get borrowers. This
agreement enables banks to refer to their partnered platforms some of the smaller businesses that
the bank is unable to lend to. In return, the lending platforms refer borrowers who have
successfully repaid their loans multiple times to their partnered banks. Singapore’s DBS bank
signed this kind of agreement with Funding Societies and MoolahSense. This agreement will
benefit both banks and the platforms. Banks will get referral fees and the platforms will get
customers and vice versa.

Way Forward and Conclusion

Alternative lending segment in fin-tech sector is becoming more popular compared to payment
segment. As per Tracxn, a data analytics company’s report, investors invested around $103
million in alternative financing companies compared to $ 83 million in payment companies in
2016. NBFCs are extensively using sophisticated technology to disburse small loans to different
sections of borrowers. Lending Kart and Capital Float are mainly focused on Micro and SME
sector , Krazy Bee which has a tie up with e-commerce websites provide loans to students for
buying laptops, mobiles etc. Early Salary offers salary (loans) in advance to people who just
started their career. This shows how Indian companies are not shying away from taking risk with
the help of technology. The start-up craze among Indian youth will create more P2P players in
future.

Digital transformation will take India’s internet users from 373 million (28 percent of
11
population) in 2016 to 829 million (59 percent of the Indian population) in 2021 . By 2020,
nearly half the internet users in India would be from rural areas and tier-4 towns (with population
12
under 100,000) and rural household will earn as much as Rs.26, 700 per month . India has the
10. http://www.huffingtonpost.in/2017/05/17/small-businesses-suffer-as-indias-banks-are-reluctant-to-lend_a_22095321/

11. Cisco’s Visual Networking Index (VNI) Complete Forecast

12.http://www.livemint.com/Opinion/jCJevU7RQPS4U9w6VVGx2M/The-upcoming-digital-tsunami.html
second highest fin-tech adoption rate among digitally active consumers at 52 percent, only
13
second to China at 69 percent . The growth of internet users especially among rural India, rising
income of rural households, increasing fin-tech adoption rate among Indians and Aadhaar e-
Signature will propel the growth of P2P lending.

At present, the Indian players feel that the RBI has adopted ultra-conservative policy measures to
regulate the industry. But, the guidelines on transparency and disclosure requirements, fair
practices code, and participant grievance redress mechanism are aimed at creating good
corporate governance which is essential for a good investment climate. The regulator also
mandated P2Ps to become a member of all four Credit Information Companies (CICs) which
may help curb default rates. The guidelines seem to keep only serious players in the business so
that the industry could thrive on a strong foundation. The existing players think that the RBI will
relax some of the caps in future when it sees healthy growth in the industry. The healthy growth
can be achieved if they do business within the guidelines. The UK has Peer-to-Peer Finance
Association (P2PFA), a self-regulatory association in addition to the regulatory authority i.e.
Financial Conduct Authority. Indian P2P can also form this type of consortium to keep checks
and balances and address the challenges faced by the industry.

Indian P2Ps will definitely face challenges as they grow. As stated by 40 percent of the
respondents, the lack of proper digital infrastructure will hurt the industry. Indian digital system
is still not as efficient as the system present in the developed countries where P2P platforms
flourished. Corporate governance issue might also haunt these companies as their business
grows. Resignation of the founder of Lending Club, the largest P2P platform in the world for
improperly managing loans raised question about ethics of the platforms. There are both
challenges and opportunities in P2P lending industry. But, as the former CEO of General
Electric, Jack Welch said “business success is less a function of grandiose predictions than it is a
result of being able to respond rapidly to real changes as they occur”, only time will tell how
efficiently Peer to Peer lending platforms face challenges and create a successful business in
India in coming times.

13. EY Fin-Tech Adoption Index 2017 Report