The advancements in technology has resulted in different changes in the ways of performing business operations observed Bahaa Abdul Hussein. The introduction of P2P or Peer-to-Peer lending platforms is one such change. These platforms enable These platforms enable businesses and individuals to raise loans. They are looked upon as an attractive alternative to traditional societies and banks for procuring finances.

There are certain directions for the firms which intends to carry or carry the operation of a Peer-to-Peer lending platform. The regulation oversees the regulation of Peer-to-Peer lending platforms. Its Master Directions dictates that except for a company, non-banking institutions cannot operate the business of the lending platform. Additionally, a new regulation that intends to be engaged in P2P business can only do so by procuring the Registration Certificate.

Compliance Needs Prior To Raising Peer-to-Peer loans

The directions explicitly mention the obligations towards the borrowers and the lenders. These mention that Nonbank Financial Institutions have to ensure due diligence on the lenders and borrowers.

These need to adhere to the Fair Practices Code prescribed by the regulatory authority from time to time. The aim is to ensure complete confidentiality in the transactions that take place via the platform. There is also a maintenance of a mechanism for grievance redressal at all times for outsourced and internal activities.

Master Directions for Lenders

The directions mention that the total exposure of the lender to their aggregate borrowers should not exceed a certain limit. It is subject to the fact that the lender’s investments on the P2P platform have consistency with the net worth.

Also, the directions also mention that if a lender invests over a certain amount, they have to submit a special certificate to Peer-to-Peer platform. A practicing financial expert should prepare this certification certifying the amount as the minimum net worth.

Master Directions for Borrowers

There is no such explicit compliance requirements in Master Directions for the borrowers to observe. However, it is suggested that borrowers should properly check whether the P2P lending platform is genuine or not. As per the norms, the borrowers’ total loan value should not be more than a certain amount across all the Peer-to-Peer lending Platforms.

Some Other Regulations/Guidelines

Apart from the considerations we mentioned above, here are some other guideline applicable for conducting transactions via P2P lending platforms:

  • Rate of Interest: The rate of interest has to be in the format of annualized percentage rate.
  • Mechanism for fund transfer: Each transfer of fund between participants should take place via escrow accounts controlled by a trustee promoted by a bank.

Thank you for your interest in Bahaa Abdul Hussein blogs. For more information, please visit www.bahaaabdulhussein.com