India’s alternative finance community is calling on the Reserve Bank of India (RBI) to relax regulations on the market, particularly as they pertain to lending caps.
Reports in Business Standard this week said more than a year after the RBI introduced guidance for peer-to-peer lenders to become non-bank financial companies (NBFCs), small business alternative lenders are calling for higher lending limits. The publication, citing unnamed sources, said the lenders argue that these caps are hampering their ability to grow in the industry, arguing that most small businesses are requesting financing beyond the RBI’s cap.
“SME lending is an area which we are looking to grow,” said alternative lender RupeeCircle Co-Founder Abhishek Gandhi. “However, the limit of Rs 10 lakh is a dampener. The present regulations are sustainable for the initial phased of growth in the sector. However, if the industry wants to grow, the limit needs to be relooked.”
Today, in order to meet small businesses’ financing needs, a group of alternative lenders will collaborate on a joint financing program. Reports noted that as many as 10 businesses may group together to finance a single business.
Another alternative lender, i2i Funding, told the publication that the RBI’s guidance to help alternative finance companies secure an NBFC license has promoted growth for the business.
“We are now attracting more credit-worthy borrowers than before,” i2i Funding Co-Founder Raghavendry Singh, said. “We are giving a lot of business loans. The ceiling of Rs 10 lakh is hampering the growth prospects.”
The RBI’s requirement that banks maintain two escrow accounts for NBFCs, one to manage funds received from lenders ready for disbursal, and another to collect funds from borrowers, is also under scrutiny from the NBFC community, reports said.
India’s initiatives to boost the NBFC market and broaden small business access to capital culminated in the launch of Prime Minister Narendra Modi’s PSB59 site, which connects small businesses to financing in under an hour. It is now the largest online lending platform in India, reports earlier this year said.