If you thought borrowing funds was a complicated process, you should know that even lending is a regulated operation and companies intending to enter the business of lending have to have proper licensing and so on. This is outside the regular banking channels, obviously.

There are the non-banking finance companies (NBFC), which also lend, but a large part of borrowers, whose requirements for funds are not very huge, are left out of the system. There have been startups setup to cater to this niche in the market but they suffered from a lack of clarity in the absence of proper guidelines to operate on. This issue has since been resolved with the peer to peer (P2P) lending is now recognized as part of the NBFC forming a special category of lenders.

This came about by way of a government clarification issued through a Gazette notification clarifying that the P2P lenders will come under the umbrella of the RBI as far as their control and regulation are concerned, according to a report in the Economic Times.

This will now enable RBI to issue  clear guidelines within which  P2P startups can set up shop and start their lending operations. Shankar Vaddadi, who has founded a start up in this segment, i-lend, has welcomed this move. Speaking to ET, he says that the recognition of their status will also enable the startups to access venture capital funds if and when they need to expand their operations.

The much fancies small and medium enterprises SME’s are the ones who should be benefitting from such avenues for borrowing for their genuine working capital needs and other fund requirements.

The peer-to-peer lending business model works on the online platform facilitating the meeting of lenders and borrowers. As mentioned, a large part of the SME population is still deprived of financing through the traditional banking channels due to various reasons and this gap is what the P2P segment will try and fill.