Finding different sources of investment is picking up as a phenomena across the Globe along with India. With limited venture funds and resource capital available, individuals are being compelled to seek out different avenues of funding such as peer-to-peer lending (P2P lending) for their educational, personal, functional purposes.
What is Crowd Funding and Peer to Peer Lending?
CrowdFunding generally refers to a method of funding a project or venture through small amounts of money raised from a large number of people, typically through a portal acting as an intermediary. There are numerous forms of crowd-funding: some are charitable donations that provide intangible benefits but no financial returns; others, such as equity crowd funding would fall within the domain of financial markets.
Peer-To-Peer Lending (P2P Lending):
P2P lending ( or P2Pl or P2P financing or P2P borrowing) is a form of crowd-funding used to raise loans which are paid back with interest. It can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans.
Few points to keep in mind:
- Interest rate may be set by the platform or by mutual agreement between the borrower and the lender
- Charges(Fees) are paid to the platform by both the lender as well as the borrower.
- The basic functions that the web portal carries out are that of a service provider and on a broader perspective include the following:
* Provide a platform for lenders and borrowers to meet;
* Basic information about borrowers and lenders;
* Providing ancillary services for the financial transaction and carrying out operational activities ancillary to financial arrangement.
* The platform can provide services pertaining to loans for facilitating the lending transactions but does not subsume the role of the borrower or the lender in any of the transactions.
According to the data by Peer to Peer Finance Association (P2PFA), the cumulative lending through P2P worldwide has grown from £2.2 million in 2012 to £4.4 billion in 2015.
P2P Lending- Global Market Size
According to data released by P2PFA, the cumulative lending through P2P platforms globally, at the end of Q4 of 2015, has reached 4.4 billion GBP1. Lending through P2P has grown dramatically from 2.2 million GBP in 2012 to 4.4 billion GBP in 2015.
P2P lending is approached differently by regulators in different jurisdictions, treated as banking by some jurisdictions and as an intermediary in some others, while some jurisdictions like Israel and Japan have prohibited it altogether. Across the globe, P2P lending is regulated in FIVE different ways as outlined below:
|Regulatory Regime||Description||Countries Currently Using the Regime|
|Exempt market/ Unregulated through lack of definition||In these jurisdictions, either the regulation has classified P2P lending as an exempt market or there is a lack of definition in legislation. However, in some cases, there is regulation designed to protect borrowers and that mainly involves rules already in place to protect the borrower from unfair interest rates, unfair credit provision and false advertising.||#China, #Ecuador , #Egypt, #SouthKorea, #Tunisia|
|Intermediary Regulation||This regulates P2P lending platforms as an intermediary. It usually requires registration as an intermediary, and other regulatory requirements depending on the jurisdiction. Generally, there are regulations that establish the prerequisites for the platforms to register in order to access the market. Other rules and requirements determine how the platform should conduct its business (for example, the licensing needed to provide credit and/or financial services).||#Australia, #Argentina, #Canada (#Ontario), #NewZealand, #UnitedKingdom|
|Banking Regulation||This regulates P2P lending platforms as banks due to their credit intermediation functions and is therefore regulated as banks. As such, the platforms must obtain a banking licence; fulfil disclosure requirements and other such regulations.||#France, #Germany, #Italy|
|US Model||There are two levels of regulation, Federal regulation through the Securities and Exchange Commission (SEC) and State level, where platforms have to apply on a state-by-state basis. One level below the federal requirements is state regulation. Some states outright ban the practice of P2P lending (e.g. Texas). Other states place limits on the type of investors using the platforms to lend (e.g. California). In addition, if a platform wishes to operate across multiple state boundaries, it must apply to each state separately.||#UnitedState ofAmerica (#USA)|
|Prohibited||P2P lending is banned under legislation.||#Israel, #Japan|
US Comapnies in P2PL:
Many online lending companies have launched in the United States, but only two are purely peer to peer. Only two connect everyday investors to borrowers: Lending Club and Prosper. Additional platforms will launch in the future, but for now these are the sole two
KIVA,Lend Academy,StreetShares, ApplePieCapital,Orchard,P2PLending expert,Lending Memo,Crowd fund Insider, Funding Circle, PeerCube, PeerTrader, BlueVestment, nsrinvestment, LendingRobot, Peer Lending Server, Interest RadarLending Club , Prosper Funding,Lending Alpha.