Is P2P Lending Legal in India?

Do you know that you can lend and borrow your money online? not yet, so let me tell you what is one of the things that is missing from your financial life, which can help you to get your loans at a very low interest rate. Yes, it is peer to peer lending, so let’s go and discuss more about it in the article below.

p2P lending india

First and foremost, thing to know is that Is P2P lending legal in India. We will revolve around this question in this article to get our answers done, but first let’s get to know more about what is peer to peer lending?

What P2P Lending actually is?

Peer to peer (P2P) lending is gaining popularity in recent years as it is so convenient and great interest rates. This online platform provides us an alternative to traditional banking, also allowing borrowers to connect linear with lenders. Many have found it to be a favorable option for meeting their financial needs. It is a form of financial transaction which involves an individual or organization lending money to another individual or organization, without the use of a traditional financial intermediary. 

Overview of India’s Legal System

The legal framework governing P2P lending in India is still evolving right now, and the Reserve Bank of India has followed few guidelines to regulate the P2P lending. The guidelines focus on the eligibility criteria and registration process for P2P lending platforms, as well as the operations of these platforms. In addition, the guidelines also provide guidance on the responsibilities and duties of the P2P lending platform, and the rights and obligations of the borrowers and lenders.

Is P2P Lending Legal in India?

  • In 2012, P2P lending was firstly introduced. Afterward, the industry has grown rapidly with the Reserve Bank of India issuing the regulations for P2P lending in 2017. 
  • With respect to the guidelines, all P2P lenders have to register with the RBI as a Non-Banking Financial Company and will obtain a certificate of registration.
  • RBI has also few certain restrictions on the amount of money that should be lent and borrowed through these lending platforms. 
  • RBI has also issued guidelines on KYC (Know Your Customer) requisite, to ensure that the lenders and borrowers are genuine. of the Competition Commission of India, in order to protect the interests of both lenders and borrowers.

Moreover, the RBI has also enforced few guidelines which include: 

  • Ensuring that borrowers and lenders meet certain criteria. 
  • Maintaining a minimum net-owned fund of Rs. 20 lakhs 
  • Putting in place an internal grievance redressal mechanism
  • Ensuring that all transactions are conducted in Indian Rupees.

Thus, P2P lending is legal in India, as long as it complies with the regulations of the RBI and the Competition Commission of India

Regulatory Framework

The regulatory framework for peer-to-peer lending is an important factor in the success of the industry. Regulations aim to protect consumers, ensure fair practices, and create a level playing field for lenders and borrowers. The regulatory framework also provides a platform for lenders and borrowers to engage in fair practices and protect themselves from potential risks.


What is the purpose of P2P lending regulations in India?

The purpose of the regulations is to provide a safe and secure environment for peer-to-peer (P2P) lenders and borrowers, as well as to protect the interests of the investors in the P2P lending market. 

Who are the parties involved in P2P lending?

The two parties involved in P2P lending are the borrower and the lender. The borrower is the person who needs the loan, and the lender is the person who provides the loan. 

What are the benefits of P2P lending?

P2P lending offers many benefits, such as lower interest rates, faster loan processing, and more flexibility in loan terms. It also provides a platform for both lenders and borrowers to connect directly, eliminating the need for a third-party financial institution.

Are there any risks associated with P2P lending?

Yes, there are certain risks associated with P2P lending, such as credit risk, liquidity risk, and operational risk. It is important to be aware of the risks before investing in the P2P lending market. 

Is there a minimum amount required for P2P lending?

Yes, the RBI has specified a minimum loan amount of Rs. 25,000 for P2P lending in India. 

Does the RBI regulate P2P lending?

Yes, the RBI regulates P2P lending through the “Master Direction on Peer-to-Peer Lending” issued on April 1, 2018. 

Are there any restrictions on the use of the loan proceeds?

Yes, the loan proceeds can only be used for personal, educational, business, or other legal purposes.

Are there any fees associated with P2P lending in India?

Yes, P2P lending platforms in India charge a processing fee, which is typically around 23% of the loan amount.


So yes, P2P lending is legal in India, as it has been regulated by the Reserve Bank of India since April 1, 2018. It is a legal activity in India. It is a great option for both lenders and borrowers as it offers convenience, transparency and better interest rates. However, it is important to understand the risks associated with P2P lending and take appropriate precautions to ensure safety of funds.

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