In response to a longtime request from the industry, the Reserve Bank of India has finally given a big relief to the country’s peer-to-peer lending startups as it increased the limit of total investment a person can put across all P2P platforms at any given time from INR 10 lakh (USD 14,000) to INR 50 lakh (USD 70,000).
The Indian P2P companies have been asking the regulator to increase the limit for long as they believed the limit was not letting them fully grow as they would like to.
Earlier this year in August, a bunch of P2P companies wrote a letter to RBI seeking a bigger room to operate so that they can utilize their potential. Later, they wrote another letter to India’s finance ministry voicing the same idea.
Now with the dust settled, we got in touch with Ajit Kumar, founder of Mumbai-based RupeeCircle, one of the various P2P startups functioning in India. Like many other industry insiders, Kumar also thought the new move would bode well for the whole sector, with a long-lasting impact in this fledgling industry.
The interview has been edited for brevity:
KrASIA: What does this mean for the companies?
Ajit Kumar: It’s a positive development as all of us have been waiting for this. Before the announcement came, there were two thoughts in the industry: one was that will RBI in the near future change the limit or not. Secondly, people were thinking if RBI is at all serious about P2P space in India, and what would be the future of P2P companies that have already received so much investment.
Now, we have answers to both the questions. It has put its trust in the P2P companies and by increasing the limit it has given its total backing to the sector as well. This definitely shows that going forward the Indian regulator will be ready to listen to us if we keep on showing them the data and tell them what exactly we need from them. This number in the future may also go up from the current limit of INR 50 lakh (USD 70,000).
With the openness of the RBI everything will go in the right direction. The data that we have collected will help us. If you see the banking and fintech industry right now, there are a lot of thoughts about the government and regulator being conservative and this recent directive goes against that image.
Kr: How will this affect the companies?
AK: Product offering is going to be the same. It’s a simple product where people are putting their money for others to utilize. It will definitely attract a different breed of people since the increase of the investment limit. Earlier, not many High Networth Individuals (HNIs) were looking at this investment opportunity as lucrative as some of the options they had. Now, we will see more HNIs actively seeking to invest in P2P platforms. It will also bring more institutional players who would bring bigger amount.
It will also attract different portfolio companies who were basically managing wealth of their customers. For them they will have a bigger volume to play with.
In terms of business, we definitely believe that this whole thing will ensure there will be more credit available for borrowers. This will also give us the opportunity to further explore the right combination of products for borrowers and lenders.
Kr: Will it also mean better interest rates can be offered?
AK: Interest rates is always aligned with the risk. By increasing the investment limit of the lender, we are not saying that the risk of the borrower has changed. So it will remain the same. One individual can invest more, and further divestment of that money will have more avenues.
Kr: When you guys wrote to the RBI did you seek for an increase of INR 1 crore (USD 140,000)?
AK: So, there is always a bigger ask as we know what we will get is somewhat lesser than what we want as the regulator also doesn’t want to take full chance at once.
Regulator also wants to ensure that things are going in the right direction, they want to help the businesses but also make sure customers are protected. Let’s first try to grow our business with this change.
Kr: How do you see VCs reacting to this?
AK: Every time we approach investors to raise funds, we have had to listen to their concerns about what RBI thinks of our business. Now, I think they will be relieved and we look forward to more investors coming in and helping P2P companies grow their business. We are looking to raise USD 3 million right now.
Kr: How many investors and borrowers do you have and where are they based?
AK: We have more than 50,000 borrowers and more than 14,000 registered lenders on the platform. We have raised close to INR 10.5 crore (USD 1.50 million) from lenders.
Borrowers are mainly in Mumbai and Chennai and they primarily come from a low-income segment. Different P2P companies have different set of borrowers. We are very focused on financial inclusion segment. We see this as a big market, and these are the people who really need credit.
Kr: Why are you limited in Mumbai and Chennai only?
AK: Mumbai because our company is based here and for a lending company collection is an important aspect of it. We have people here on ground dedicated for collection here in Mumbai, so it just makes sense to u. Mumbai itself is a huge market of which companies have not even scratched one percent of the market. We went to Chennai mostly because we wanted to explore the South India market.
In the next two years, we plan to go to more than 24 cities in India.
Kr: How big a focus is smaller towns for you and other players?
AK: Some players are already there. Lending is not like a payment business where money is coming from the other side. We have to build the right ecosystem to go to smaller towns. Even if everything is digital, it requires some physical assistance. We have to be conservative in how much we want to spend there. But we definitely want to go in tier 2, 3, and 4 cities as that is where the actual need is.
It’s a function of money for us to reach smaller towns. In terms of processes we are ready as we have been analyzing the right set of data to understand borrower’s intent from smaller towns and we think it’s a good fit for us and them. Probably by another year we will start offering lending solutions in semi-rural areas as we strengthen our position in tier 1 cities.
