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Unclear norms: P2P lending startups face funding woes

P2P startups are finding it difficult to raise funds because of regulatory uncertainty.

, ET Bureau|
Updated: Jul 24, 2018, 10.34 AM IST
Unclear norms: P2P lending startups face funding woes
Delay in regulations is affecting P2P start-ups and their fund-raising plans.
MUMBAI: The fledgling peer-to-peer lending start-ups, which had been waiting for almost a year for the Reserve Bank of India to lay down the rules of operations, may find the going tougher.

While on the one hand, delay in regulations is affecting their fund-raising plans, it is also casting a shadow over their expansion prospects.

People close to the development told ET that though the regulator has forwarded the draft guidelines to Department of Financial Services, the Ministry of Corporate Affairs has raised questions about the rationale behind regulating such a nascent sector and bringing the entities under stringent NBFC norms of RBI.

“The Ministry of Corporate Affairs is said to have expressed worries regarding lending for corporate entities through P2P platforms,” said one a founder of a Mumbai based P2P lending platform. “While for retail lending it is not a major issue, SME lending falls under a different set of regulations of the Registrar of Companies which needs to be adhered to,” said the person quoted above.

In case of SME lending, it can either be as an investment against shares or as corporate deposits, but in case of P2P lending, it is a pure debt lending – thus those clarifications would be required before the final guidelines came out, resulting in further delays and might require a fresh set of rules around lending within the ministry.

As various issues keep delaying the final guidelines, P2P startups are finding it difficult to raise funds to scale their business because of regulatory uncertainty.

“Foreign investors were showing keen interest in this space last year in anticipation of the final guidelines, but now with the uncertainty, investor interest has dimmed. We need foreign investors to expand our scope of business and strengthen our platforms for more traction,” said a founder of another P2P startup in the country.

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