Peer-to-peer (P2P) lending is slowly changing credit access in India by connecting borrowers and lenders through online platforms that bypass traditional banks. However, despite its promise of higher returns and broader access, the absence of clear redressal avenues and strict regulatory boundaries often leaves participants exposed to unforeseen risks and unresolved grievances
During a counselling session at Moneylife Foundation, an aggrieved lender approached me for help, since his complaint against a P2P company had been rejected by the banking ombudsman. The reason: This type of complaint was not under the purview of the ombudsman.
have, since, received several such complaints at the Foundation. A common problem is that borrowers default on payments. These recurring complaints led me to examine the master directions issued by the Reserve Bank of India (RBI), first published on 4 October 2017 and most recently updated on 27 February 2025.
These 38-page directions contain a framework for overall management, regulatory structure and definitions. I am going to focus only on those issues that are relevant to borrowers and lenders
The Concept in Brief
At its core, peer-to-peer lending is an online platform that connects individual lenders directly with borrowers, bypassing traditional banks. The borrowers are usually individuals or small businesses with limited access to bank loans and need funds. The lenders, also individuals, provide capital in exchange for interest income. Borrowers and lenders are referred to as ‘participants’ and engage through an online platform that acts as a facilitator. It conducts credit assessments, enables transactions, and ensures compliance with RBI regulations.
Most P2P platforms rely heavily on targeted digital campaigns through social media, Google ads, and finance-focused online communities to attract individuals seeking alternative investments. They use educational webinars, influencer partnerships, and frequent posts about higher returns and platform safety to generate interest among potential lenders and also use influencers and incentivise referrals. This makes it doubly important for people to understand the risks rather than focusing only on promised returns.
On paper, RBI has provided plenty of checks and balances in its regulatory framework.
RBI Guidelines and Regulatory Framework
RBI has laid down strict guidelines for P2P lending platforms under clause numbers 6, 7, 8, 9, 11, 12 and 13 of the said master directions.
Clause 6 lays down the scope of activities for the NBFC-P2P platform. Some of them are –
• It can neither raise deposits nor can it lend on its own. (A typical ‘banking’ which otherwise is carried out by banks.)
• It cannot give any credit guarantee or assume any credit risk arising out of the transactions carried out on its platform.
• Entire loss of interest or principal or both has to be borne by the lender.
• Only ‘clean loans’ (i.e., unsecured loans) are permitted.
• Not to cross-sell any products except an insurance related to the lending.
• Properly store all data related to its activities and participants.
• Must deploy lender’s funds as specified by the lender participant.
• Undertake credit assessment and risk profiling of the borrowers and disclose the same to prospective lenders.
• Obtain specific consent from the participant to access its credit information.
• Undertake documentation of loan agreement.
• Providing assistance in disbursement and repayment of loan.
• Render service for recovery of loan originated on the platform.
Clause 7 fixes some caps on the lent and borrowed amounts as prudential norms. These caps apply to a single lender as well as a single borrower collectively across P2P platforms. The clause also sets a time limit of maximum 36 months for loan maturity.
Clause 8 is related to operational guidelines like –
• The platform shall set rules for mapping / matching borrowers and lenders without any discrimination.
• The NBFC-P2P shall be responsible for any acts of its outsourced agents including recovery agents.
• It shall disclose the fees to be charged.
• Practice of matching / mapping the participants within a closed user group is not permitted.
Fund transfer mechanism is very well explained in clause 9 which mandates minimum two escrow accounts – one for funds received from lender and pending for disbursal, and another for collection for borrower. This mechanism will ensure that funds from lender’s account are transferred only to specific borrower’s account once relevant provisions are complied with. Cash transactions are not allowed and funds shall be transferred maximum on T+1 basis.
Clause 11: Transparency and disclosure requirements
• It will provide to the lender the personal identity of the borrower, the loan amount, rate of interest, terms and conditions and credit score of the borrower as arrived by the non-banking finance company (NBFC)-P2P.
• It will provide to the borrower the details of the lender, amount, rate of interest, terms and conditions, but not personal identity and contacts of the borrower.
• It will disclose publicly on its website, its methodology of assessment, credit score, data protection, grievances redressal mechanism, portfolio performance including the share of non-performing assets (NPAs).
• It will disclose the losses borne by the lenders on principal and / or interest to the lender.
Clause 12 outlines the Fair Practices Code which requires NBFC-P2P platforms to obtain a declaration from lenders stating their awareness and acceptance of the inherent risks involved.
• Lenders must acknowledge that the platform does not guarantee the return of principal or payment of interest, and that a complete loss of principal is possible in the event of borrower default—a risk repeatedly emphasised in regulatory directions.
• The platform offers no assurance regarding loan recovery, and staff involved in recovery are expected to maintain proper conduct, ensuring no harassment takes place.
• The platform shall not promote this type of lending as an investment product with features like tenure-based returns.
• Additionally, participant information will only be shared with third parties after obtaining explicit consent.
• Importantly, platforms are prohibited from presenting P2P lending as an investment product featuring tenure-based returns.
• They must also publish a clear disclaimer on their website and app, clarifying that the RBI does not take responsibility for the accuracy of any claims made by the platform and does not provide any repayment guarantee for loans facilitated through it.
Now, let us examine a crucial aspect of grievance redress as outlined in Clause 13 of the directions. As usual, RBI mandates a ‘board-approved policy’ by the NBFC-P2P platform to address complaints. The platform must display the name and contact details of the grievance redress officer prominently. If the grievance is not redressed within one month, the participant may appeal to the customer education and protection (CEP) department of RBI. The link below gives details of CEP cells set up by the RBI at various state capitals –
It also facilitates filing an online complaint.
Clause 13(a) of the master directions states that NBFCs covered under the RBI Integrated Ombudsman Scheme shall comply with the directions provided in this scheme. Now the scheme defines a ‘complaint’ as ‘grievance alleging deficiency in service’ as mentioned in clause 8 of this scheme. The clause specifies 13 grounds for lodging a complaint and most of them are related to pure banking.
I found only two grounds which can be co-related to NBFC-P2P platform for filing a complaint. The first is the non-observance of RBI directions to the NBFC and the non-adherence to RBI’s fair practices code. This makes it clear that RBI’s integrated ombudsman scheme will not entertain any complaint like default in payment of interest and/or principal, arising out of a transaction on NBFC-P2P platform.
It thus becomes the responsibility of the lender to find out whether the platform adhered to RBI guidelines and fair practices and a complaint will be sustained only for these lapses. The rest of RBI’s directions relate to operational guidelines.
In Summary:
• An NBFC-P2P platform facilitates the lenders and borrowers to come together.
• The loan must be a clean one, that is, without any security.
• The lender must understand the risk involved in such a transaction.
• Neither RBI nor the platform assure any guarantee for repayment of the loan or payment of interest or both.
• Lender and borrower should agree upon the terms and conditions of the transaction. The platform does not come into the picture.
• Though the platform provides certain information about the borrower, it is finally up to the lender to read the financial kundali of the borrower before lending.
Lenders’ Risks-Benefits
• Benefits: Higher returns than fixed deposits, portfolio diversification, and direct participation in credit markets.
• Risks: Default risk, platform failure, and limited liquidity.
Borrowers’ Risks-Benefits
• Benefits: Easier access to credit, faster processing, and competitive rates for those with strong credit profiles.
• Risks: Higher interest rates for weaker credit scores, risk of over-borrowing, and reputational consequences in case of default.
Who Should Consider P2P Lending?
• Lenders: Individuals with surplus funds, a moderate-to-high risk appetite, and an interest in diversifying beyond traditional instruments.
• Borrowers: Salaried professionals, entrepreneurs, or small business owners who may not qualify for bank loans but have the capacity to repay.
As P2P lending matures within India’s regulatory framework, borrowers and lenders must remain vigilant, educate themselves on the latest RBI guidelines and carefully assess risks in order to protect themselves.
(Retired banker Abhay Datar is a consumer activist and an expert counsellor at Moneylife Foundation. He was a member of the Managing Committee of Mumbai Grahak Panchayat (MGP) and also the treasurer at MGP for over two and a half years. After working at Bank of Baroda for 29 years, he retired as IT Manager. Mr Datar has resolved many cases related to banking and has also handled cases related to insurance and mediclaim.)
