Direction: Read the passage carefully and answer the questions given below it. Certain words/ phrases have been given in bold to help you locate them while answering some of the questions. |
The RBI's proposal to regulate peer-to-peer (P2P) lending, in which online platforms connect borrowers to people with money to lend for a fee that covers services like preliminary creditworthiness profiling, repayment and recovery facilitation, is welcome. |
Light-touch regulation is warranted to enable an orderly growth of the nascent sector. It will help P2P start-ups, numbering about 30 now, to increase their customer base, and deliver credit to small and medium industries and sectors of the economy that do not have access to formal finance. |
Some additional competition to banks, non-banking financial companies (NBFCs), microfinance and traditional moneylenders is welcome. But it should be regulated: missing regulation in China led to largest P2P lender Ezubao turning insolvent after it was alleged to have run a Ponzi scheme. RBI supervision is sensible, even if P2P platforms do not pose any systemic risk. |
The only apparent reason why the RBI wants to regulate P2P operators as NBFCs is expedience: the RBI Act would not need to be amended to recognise a new category of financial intermediary. But this is not good enough. Unlike an NBFC, a P2P platform does not take the money that is lent on to its books. It cannot accept deposits or promise assured returns directly or indirectly. |
It merely credibly introduces the lender and the borrower, and facilitates recovery. Credit moves directly from the lender's bank account to the borrower's. Applying norms similar to those for NBFCs - a minimum capital requirement, limit on leverage and having personnel with a background in finance--is, therefore, illogical. The case for prudential limits on the maximum contribution by the lender to a borrower or segment of activity is, however, compelling, given the poor level of financial literacy in India. |
Fit and proper criteria for promoters, directors and CEO are in order, as is a brick-and-mortar presence in India for the P2P platform. A system of data sharing with banks and the credit information bureau is desirable, with complementary laws on data protection. |
(A) those sectors of the economy that do not have access to formal finance. |
(B) P2P startups increase their customer base |
(C) big business houses set up big industries and provide opportunity to youth. |
A) Only (A)
B) Only (B)
C) Only (C)
D) Only (A) and (B)
E) All (A), (B) and (C)
Correct Answer: D
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