The question that typically arises with the debut of new Peer-to-peer lending platforms is how secure they are. As with any P2P lending website, you should look for the platform’s security procedures to determine how safely your information is transferred on the internet when conducting transactions. Even though no bank is involved in the lending, repayment should not be taken lightly.
How Is P2P Lending Regulated in India?
Because peer-to-peer investing is a type of lending, it is regulated by the Reserve Bank of India (RBI). The RBI has established criteria for how P2P lending services must operate. For example, any company that wants to provide P2P investing services must apply to the RBI for an NBFC-P2P license.
As the regulator, the RBI guarantees that these platforms pose no significant systemic risk. According to RBI regulations, if a P2P platform decides to close down, the company’s board will follow a pre-determined Business Continuity Plan. The plan includes all of the specifics for safeguarding the information of all lenders and borrowers. The strategy also includes complexities in loan servicing for the duration of the platform’s closure.
So, these are some of the regulatory measures put in place by the RBI to mitigate the risks associated with peer-to-peer lending.
Safety measures taken by Monexo
- Data security guaranteed for both the investors and borrowers
The information provided to investors through the P2P lending platform does not include all of the borrowers’ information. The P2P platform assigns each borrower a unique customer ID, which is shown in each transaction.
Borrower information is kept confidential within the P2P ecosystem. Only after a loan is approved are brief facts about the lender’s decision on a specific profile displayed.
- The Security Mechanism for Protecting the Servers and Assets
The client’s data is saved on servers that are protected by firewalls. This data is only accessible to the P2P portal’s authorized staff. Different sorts of users have different access levels. As a result, the P2P platform’s personnel can access data relevant to their department. To prevent information from leaking, all funding agency information is exchanged across secure tunnels.
The team at the Peer to Peer lending service stores actual files and papers such as contracts in a secure locker. Only authorized personnel are permitted to remove them. The authorities insist that all financial transactions be carried out by a trustee, adding an extra layer of security. Furthermore, according to the legislation, P2P lending organizations must establish a highly secure online system that adheres to all current internet security standards.
- Background checks
Before lending your hard-earned money, we conduct a background check on the borrower. Bank statements, pay stubs, and ITRs are all saved digitally on our networks. To understand the borrower’s ability, stability, banking habits, and intention to repay the loan, online transaction data, mobile data, and social data should be thoroughly examined and studied. Based on credit history, a credit score uses these data points to generate a statistical number that rates a consumer’s creditworthiness. Credit scores can be used to assess the likelihood that a borrower will return his or her loans.
This is comparable to any other type of investment in that you conduct research before putting your money at risk.
- Diversification
Diversification, like any other type of investment, decreases risk. Even more so in the case of peer-to-peer lending. A well-diversified portfolio will be less volatile (and produce more consistent returns) than a concentrated one. As a result, it is typically seen as important for you to appropriately diversify your investments in order to make P2P lending safe.
- Lend to both businesses and individuals: Diversify between personal loans for individuals and company loans to avoid being overly reliant on one or the other.
- Lend to a diverse set of borrowers: You may gain better returns by distributing your P2P loans to a diverse set of borrowers. This ensures that your portfolio is not overly concentrated on any one loan segment. Too much exposure to loans taken by property developers, for example, may hurt your portfolio when India’s property market next slumps.
- Lend at varying interest rates: Higher interest rates are often associated with riskier loans. You raise your risk by only lending at higher interest rates. Try to mix by lending at a variety of interest rates. This will ensure that your P2P portfolio contains an appropriate mix of low-risk and high-risk borrowers.
- Lend for a variety of time periods: Try to lend for a variety of time periods. You can lessen the risk of your P2P lending investments becoming concentrated over a single period of time by investing across multiple timescales. Investing throughout a range of timescales will also increase your liquidity.
- Collection & recovery services
The platform you use for P2P lending should make it easy for you and the borrower to sign a legally binding agreement.
Monexo collects and stores post-dated cheques from borrowers. This is only effective if the borrower fails to make payments on time. These recordings can be used as evidence in criminal judicial procedures.
Monexo loans are only disbursed after the borrower executes the legally binding loan agreement. Furthermore, the loan proceeds are transferred from your escrow account to the borrower’s bank account.
You will get EMIs every month when the loan is disbursed. If a borrower fails to pay an EMI on time, a penalty should be imposed on the borrower.
Every month, the entire EMI payment is automatically deducted from the borrower’s account and transferred to your Escrow account, where it is displayed in your virtual account.
Conclusion
Before becoming a member of a P2P lending service, it is critical to understand its security procedures. It will assist you in determining whether the Peer to Peer lending platform is following industry best practices to ensure the security of their transactions. They must have a secure HTTPS mechanism in place to ensure that all data is transmitted across secure channels. Furthermore, the P2P lending portal’s team should keep the actual documents in secure lockers that only the platform’s authorized staff has access to. To add an added layer of security, the trustee handles all transactions. Borrowers are assigned unique IDs that allow them to be identified on the network.
