Following the industry-level decision, Matrix Partners-backed Liquiloans has written to its business partners informing them it would pause the liquid scheme option for all new lenders.
Liquiloans’ decision comes into effect at the end of this month. Other P2P startups offering this service will also halt the scheme, the letter stated. ET has reviewed a copy of this letter sent earlier this month.
The initiative by the Association of P2P Lending Platforms comes on the back of sharp displeasure expressed by the country’s banking regulator over a spate of such products offering attractive interest rates and instant liquidation options to retail investors.
The deputy governor of the Reserve Bank of India M Rajeshwar Rao called out such products as a breach of licensing conditions at a public event in February. Other RBI officials have also rebuked P2P lenders over such offerings during inspections of (non-banking financial companies) NBFC-P2Ps, people aware of the matter said.
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The central bank’s displeasure was directed at the highly risky P2P schemes that were designed with the look and feel of a (bank) fixed deposit — where a user can earn interest for a period and instantly withdraw funds even before maturity.
ETtech“In view of the DG’s comment, the P2P association has proactively given guidance to its members to pause immediate liquidity products and focus more on investor education and awareness while engaging with the regulator,” said Rajat Gandhi, cofounder of Faircent and secretary, Association of P2P Lending Platforms.
Achal Mittal, co-founder of Liquiloans, did not comment on the matter. Emailed queries to Lendbox went unanswered.
P2P lenders run a platform through which an investor can lend money directly to retail borrowers. NBFC-P2P startups are technology companies that connect borrowers with lenders and process the loan disbursals and collections.
For instance, fintech companies like Cred and BharatPe are among the largest consumer-facing applications which offer P2P as an investment opportunity to their users in partnership with Liquiloans and LendenClub.
Now, with the P2P industry’s self-regulatory move to stop the instant withdrawal schemes, products such as Cred Mint and 12% Club of BharatPe will also have to stop their instant withdrawal offerings. However, these startups will continue to offer fixed tenure lock-in products.
Some of the products that were being sold by P2P startups even had an option for redemption in one or two days.
Cred Mint and 12% Club were popularised by the attractive returns that investors could get through these features and the option for instant withdrawals.
Emailed queries to Cred and BharatPe went unanswered.
The P2P lending industry estimates that the liquid investments schemes account for around 25-30% of the sector’s overall disbursals, which currently stands at around Rs 6,000 crore.
Regulatory warnings
“The RBI wants P2P startups to restrict themselves to operating as platforms connecting lenders and borrowers only and to stay away from building complex investment products,” said a senior P2P industry executive on the condition of anonymity.
“They want matchmaking between borrowers and lenders to be done in a more transparent fashion.”
During a speech on February 9, the RBI deputy governor pointed to anytime-fund recall facilities as a breach of “licensing conditions and regulatory guidelines” which are not acceptable. Following the public comments, the P2P industry grouping decided to halt such redemptions from the end of this financial year.
While startups like Liquiloans, Lendbox and Faircent are few of the large P2P startups which are set to be impacted by the move, Mumbai-based LendenClub had already halted this product last year.
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To be sure, Liquiloans, which is a regulated entity, has faced an audit by the Reserve Bank of India over the last six months and has also implemented changes suggested by the regulator. In its letter to business partners, Liquiloan said the RBI’s audit team had conducted another round of inspection to re-validate the required changes.
Further, the central bank directives could result in redesigning of the products being currently sold by these consumer facing apps, industry executives said.
ET wrote on February 14 that P2P lending startups are going slow on deep integrations with large consumer-facing applications. Players like LendenClub, Liquiloans built very successful partnerships with the likes of BharatPe and Cred to source both lenders and borrowers.
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