Nifty, Sensex in no- man’s land – Monday closing report
Nifty is likely to rally if its closes above 7,900
We had mentioned in Friday’s closing report that Nifty, Sensex will struggle to head higher and that if Nifty does not breach 7,700, it is likely to head higher. The major indices of the Indian stock markets were range bound through the day and closed with marginal gains/ losses. The trends of the indices through the day’s trading are given in the table below:
Heightened chances of a US rate hike coupled with the upcoming stormy winter session of parliament and derivatives expiry subdued Indian equity markets on Monday. The US Fed's 'unscheduled' meet is being held to review and determine the advance and discount rates to be charged by the Federal Reserve Banks. The last such unscheduled meeting was held in 2012, wherein swaplines were discussed. The meeting assumes significances as it precedes the Federal Reserve policy meet in December, when a rate hike is expected to be announced.
Furthermore, investors were glued to political developments to see whether the government will be able to pass key economic legislation during the winter session that begins on November 26 and will run till December 23.
An apex consumer court posted for Tuesday the hearing of the Rs640-crore class action suit filed by the Indian government against Nestle's Indian arm regarding its Maggi instant noodles. A bench of the National Consumer Disputes Redressal Commission of Justice VK Jain and Justice B.C. Gupta on Monday posted the matter for November 24 after the government counsel requested to allow 31 more noodle samples to be tested. After a five-month ban on its marquee product Maggi instant noodles by the national food watchdog Food Safety and Standards Authority of India, Nestle relaunched its product in the market on November 9. The class action suit was filed by the government, accusing the company of unfair trade practices.
Prime Minister Narendra Modi on Monday said India has ended regulatory uncertainty to a large extent and is creating a policy driven state. "We have ended regulatory uncertainty to a large extent, creating a policy driven state," Modi said, while meeting the corporate honchos of Malaysia. "I assure you that India wants to progress. You have the experience and expertise. We have the requirement. It is a perfect match," he said. Modi added that India was now the fastest growing economy in the world, and with a stable polity offered ample scope for investment. External affairs ministry spokesperson Vikas Swarup tweeted: "Always time for business! Modi meets leaders of Corporate Malaysia for strengthening commercial ties." Earlier, India and Malaysia signed three agreements on cyber security, cultural exchange and infrastructure development, on the third day of Modi's visit. The Prime Minister's Office said, "Stronger economic ties and more investment are key focus areas."
The top gainers and top losers of the indices are given in the table below:
The closing values of major Asian indices are given in the table below:


P2P lending: Is it crowd funding or CIS?
Regulatory complexity and lack of clarity on P2P model has acted as a major deterrent in India when it is growing fast worldwide
While the entire world is enjoying a boom in peer-to-peer (P2P) funding, in India this type P2P lending is still not prevalent and has no recognition at all. Even more, there are no regulations governing P2P lending. While the common laws of the country are largely based on the UK laws and are largely facilitating and broad based in nature, the regulatory complexity and non-clarity on P2P model has acted as a major deterrent in venturing into the region. There is ambiguity on whether P2P would be seen as crowd funding model or will be seen as a collective investment scheme. The Securities Exchange Board of India (SEBI) has a draft on crowd funding but there is still a long way to go before the same is finalised and implemented. Lack of understanding on the regulatory side is one of the primary causes that P2P has not taken off in India. See Moneylife article on legal aspects of P2P in India.   
Rise of P2P Business
With the advancement in technology, there has been a dramatic change in the lifestyle and perception of people, from sharing their mood on Facebook or becoming an overnight celebrity by trolling on Instagram or twitter to crowd funding from across globe for a social cause, to starting a business idea online. Technology has opened a virtual world, which is now gaining traction for doing business surpassing geographical limitations. With the emergence of new and improved technologies, lives have become much easier (if we could say so) than what it was just a decade back. 
In the era where everybody is connected to the World Wide Web, there is much happening on exploring financial intermediation through technology as well. Lending and borrowing is an age-old relationship. Right from the days of usurious money lending to intermediation by banks and financial institutions. Technology is now ushering an era of removing the limitations of physical presence for lending decisions and is buzzing to create a new virtual space for undertaking lending decisions. An outcome of this is emergence of a business model called, peer to peer lending, more popularly known as P2P lending
P2P is a process where the lenders and the borrowers come together on a virtual platform in a bid to undertake financial business. The role of the platform is limited to acting as a facilitating agent, in some more complex models P2P platform is actively engaged in lending apart from acting as facilitation centre. 
The focus of the article is to understand the current models of P2P lending across the globe. 
Current Scenario of P2P Business
Peer to Peer Lending has become an important part of the financial services sector in many countries worldwide. Companies like Lending Club, in the United States of America and Zopa in the United Kingdom , which started their operation just few years back have already became a threat to the retail banks. These companies are now worth billions. They advance loans of nearly equal values as any retail banks in the respective countries.
The key factor that has led to success of these companies is that instead of advancing loans to borrowers out of their own fund they tend to bring together the members of common public of a country who have idle funds and the ones who are in need of funds. These companies act as intermediaries between the lender and borrowers. By acting as intermediary, they avoid the traditional risk, which a bank has to face as they act as borrower to every lender and lender to every borrower.
There are numerous success stories of P2P lending companies (company) worldwide , but this must be noted that business of rolling third party money isn’t the easiest one to clone and achieve success as it depends on multiple factors including regulatory framework, public’s mind-set toward credit and taking up risk, structure and diversity of the economy.
With the emergence of new technologies and cheaper cost of communications P2P lending companies tend to have much wider reach than the banks. The transacting parties do not need to come together physically, instead they come together to transact on virtual platforms set up by these P2P lending companies. By use of these platform people are able to raise funds and disburse loans from distant or remote locations, just by logging on to the virtual platforms provided by the P2P lending companies.
a) client-segregated account model; and 
b) notary model. 
The modus operandi of the two models is illustrated below. 
Types of P2P model
This is the simplest form of P2P model, where the lenders directly interact with the borrowers and they themselves fix their counter parties.
The process of client-segregated accounts model is briefed below:
  1. The borrower first put in their loan request on the P2P site, 
  2. These loan requests are then listed on the P2P website for the lenders to identify and act on the loan requests.
  3. After successful identification and assessment of credit worthiness and various other factors related to the borrower, the lenders then release the funds in favour of the borrowers, which are deposited into a specific account called the Investor Sub-Account maintained with the P2P company, there a separate investor sub-account for each and every client (lender and borrower).
  4. These funds are then transferred into the Investor Sub-Account of the borrower for him to withdraw the same as per his convenience.
  5. After the funds reach the borrower the P2P company charge their administration fee from both of the clients.
  6. At time of repayment (both principle and interest) the borrower deposits the amount in the same Investor Sub-Account.
  7. These funds are then transferred to the lender’s accounts, which are then available for the lender to withdraw or use them to fund further transactions at the P2P portal. 
This form of P2P model is very transparent as both the parties have complete knowledge of where their hard earned money is going or to whom one needs to pay, to pay off ones debts. Here the lenders do not face any risk of losing their money in the event of bankruptcy of the P2P company as there is a direct agreement between the lender and the borrower, nor the company faces any risk of claims from the lenders in case of default of the borrowers, as the lenders are the sole decision makers based on their own discretion, whether to advance a loan to a specific borrower or not. 
This is a much complex form of P2P business, which involves a commercial bank apart from the lender or the borrower.
The process of the notary model is briefed below:
  1. The borrower first put in their loan request on the P2P site.
  2. The P2P company then forward the loan request to a commercial bank associated with the company, the bank then sanction the loan and issue a loan promissory note to the company.
  3. The company then forward the promissory note to the borrower.
  4. The company then charges its admonition fees form the borrower.
  5. The borrower then submits the promissory note to the issuing bank. 
  6. The bank in return pays the promised loan amount to the borrower.
  7. Meanwhile the company lists the loan request on its website, for the lenders to view them and advance funds to finance the loan request.
  8. Ones there are sufficient funds with the company from the lenders, the company immediately buys the loan receivables form the commercial bank. And issues pass through certificates (ptc) to lenders in proportion to their fund in a single loan.
  9. At this time the company charges its administration fees from the lenders.
  10. At time of repayment of the loans, the borrowers pay the company to pay off their debts.
  11. Which are passed to the lenders accounts held with the company for funding further loan transaction or withdrawal by the lenders.
This form of P2P model is advantageous to the borrowers as they do not need to wait for a lender to identify him/her and advance them loans, instead the company helps the borrowers by making the loans originate from the bank as soon as possible and later converting the loan into a P2P loan. This is the model used by the industry leaders like Lending Club and Zopa.
Impact of P2P business
P2P lending is growing fast worldwide and if it keeps the same pace of growth, it is set to overtake the traditional system of banking in the next decade.
In the US, the amount of loan disbursed by Lending Club alone up to the year 2014 is over $8 billion, which is very low as compared to the total of the country’s retail deposits, but for a player who entered the market just 7 years back, the amount of loan disbursed by it is huge.
In the UK, the value of total loans disbursed by the P2PL companies raised from £871 million in 2012 to £2.4 billion in 2013, and since then the amount kept doubling every six month – one Year. Though this is a very small amount as compared to the €1.2 trillion retail deposits of the country, the rate of their growth is surely seen as a threat by the commercial banks of the country. 
Though the concept of P2P lending originated in the UK and was developed in the US, China the 2nd largest economy of the world is not lacking behind in any aspect in exploiting the advantages of P2P lending. Ppdai was the first P2P lending to go live in China in June 2007 and since then the no of P2P companies has been on a constant rise. Due to the conservative policies of China no one knows of the total revenues of these platforms, but they surely are making some decent profits to continue to remain in business and even attract new entrants, who are not only from within China but from overseas as well. Alibaba Group Holdings Ltd’s  finance arm is all set to create a P2P market place worth $163 billion (¥ 1 trillion) in China by the year 2016. It launched its P2P platform “Zhao Cai Bao” in April 2015 and is already a market place worth ¥14 billion. The CEO of Zhao Cai Bao stated – “Think of us as an exchange for loans”. It can be clearly understood from these words that Zhao Cai Bao is openly challenging the retails banks of China in their lending business.
These countries even have strict regulations to keep check on the amounts of money circulated by these platforms, as they deal with public money they are needed to comply with strict regulations to protect the general public of the country
In the US, the Securities Exchange Commission (SEC) regulates the P2P lending companies, in UK the P2PL companies are regulated by the Financial Authority and in China they are regulated by the People’s Bank of China, which is even the central bank of the country.
The slow or late emergence of P2P lending in India is mainly due to the mind-set of the people, who do not want to take risk of advancing loans in order to earn higher on their idle funds and still prefer the traditions system of approaching the banks for deposits and investments. India needs to catch fast with the rest of the world in this regard to enjoy the early benefits from this new system.
(Ameet Roy works as Executive in Financial Planning Division at Vinod Kothari Consultants Pvt Ltd)



Amit Sharma

2 months ago

Hi, very informative article.
I am a prospective investor and was looking for profitable options to invest. I wanted your views about Peer to peer lending and is it a viable option to invest?

R Balakrishnan

2 years ago

Neither a borrower nor a lender be....



In Reply to R Balakrishnan 2 years ago

Artho Rakshati Rakshitah . . .

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