Peer-to-peer lending can be licensed for PTP lending: Rashtra Bank study A study has suggested opening the license for platforms where loans and mortgages can be transacted online. A study by the National Bank’s Economic Research Department, published on Sunday, highlighted the potential of peer-to-peer (PTUP) lending and suggested opening the license.
The PTUP platform is a means of personal borrowing or lending. Borrowers and lenders can create accounts and make loan transactions according to their needs.
The PTUP platform has all the information about borrowers and lenders. So that a person who takes or gives a loan personally can take or give a loan from the right person at the right interest rate.
In order to transact loans from an individual, the study suggested that proper details of credit scoring, credit history, assets, debt, debt-to-income ratio, employment details, and loan accounts in banks should be kept. In this case, the lender can make a decision to give or not to give a loan only by looking at the details of the borrower.
PTUP lending is a new concept for Nepal. Therefore, the conclusion of the study is that strict vigilance, monitoring compliance, and strong supervision capacity are necessary for them. However, since there are only limited details about borrowers in Nepal, it may be difficult for the PTUP platform to distinguish whether a borrower is eligible for a loan or not.
For this, potential risks of PTUP, such as fraud and money laundering, should be identified, and the regulatory framework should be designed accordingly. The study suggests that even in such a policy, how much the investor can invest or how much the borrower can borrow should be specified.
Recommendations given by the study
Regarding PTUP lending, the regulatory body should change the old policy and prepare a new policy. Similarly, proper rules should be made for licensing the PTUP platform.
A necessary financial system, such as a credit scoring system and unique identification for personal identification, should be prepared.
A proper policy should be made for PTUP lending. In the initial stage, Nepal Rastra Bank should give licenses to some providers to operate the system for small loan transactions. This helps identify the demand, benefits, and risks of this new type of financial service. Only then can Nepal Rastra Bank fully operate PTP lending.
Before fully operating the technology related to PTP, it should be analyzed after receiving feedback from the relevant stakeholders regarding this report.
What is ‘Peer to Peer Lending’?
In general, ‘Peer to Peer’ (PTP Lending) is a term used in computer networks, which means sending or receiving digital media files from one computer to another computer.
‘Peer to Peer Lending’ is an arrangement for individuals and organizations to start a business, expand, or for any other purpose by maintaining appropriate contact through online services for loans and loan transactions.
How did it start?
Zopa, which is considered the world’s first PTP lending company, was started in the UK in 2005. But it got the license from the complete banking sector regulator only two years ago. Currently, it is doing the work of a bank.
During the economic recession of 2006 and 2009, banks in the UK were unable to provide loans. Because of that, people were lacking credit. People don’t have the nature to stay stuck in problems all the time.
Due to the easy availability of credit, this business flourished at that time. After that, it started to be learned in other countries as well. Meanwhile, in the year 2006, ‘Prosper Marketplace’ was launched in the United States of America. “Society One” started in Australia in 2012.
What is the difference between peer-to-peer lending and banks?
A bank is a financial institution. where the loan is disbursed only after completing various paper procedures. To get a loan, you have to pay a mortgage. The bank gives you a loan from the deposit it has.
But in Pitupi Lending, the loan disbursement is not done by the bank but directly by the investors. where physical presence is not necessary.
Individuals or organizations can provide loans through PTUP Lending. Compared to taking a loan from a bank, it is easier to take a loan from peer-to-peer lending.
How have the lenders and borrowers benefited?
Compared to banks and financial institutions (savings accounts), investors or lenders earn more interest in PTUP. Similarly, since there are many options, borrowers are also likely to get a loan at a low interest rate.
Investing in PTUP is now considered an easy source of income. Therefore, lenders are getting attracted to it.
Especially if the Central Bank of the country does not regulate PTP lending based on the principle of lending to earn money, there is a danger that lenders’ investments may sink. But aside from this, there is also a place to attract lenders.
How do I participate in peer-to-peer lending?
To participate in peer-to-peer lending, you first need to’sign up’ (like opening a Facebook or email account) with the company that operates this service. Then, if you want to give credit, you will have to find a borrower.
You can set the conditions, including how much money you want to invest and for how long. If the borrower accepts your offer, you can invest.
Which may include your identity documents, source of income, employment status, etc. After verification, you can place your conditions. If both parties agree, the loan will be received.