P2P Lending — Retail Credit as an Asset Class

P2P lending platforms offer attractive returns (often 10–16%+), but these returns come with a significantly high risk of borrower default. Unlike bank deposits or debt mutual funds, loans on P2P platforms are unsecured — there is no collateral that can be liquidated if the borrower stops repaying.

• No guarantee of capital protection – platforms are facilitators, not guarantors.
• Recovery depends on legal follow-up (Section 138, arbitration, civil suits) which takes time and may still fail.
• NPAs rise sharply during economic slowdowns (job loss, business failure, medical emergencies, etc.).
• Risk profiling is imperfect – even “A-grade” borrowers can default or delay.
• Returns shown are post-facto averages – not contractual or assured.

RBI Warnings & Regulations

The Reserve Bank of India (RBI) classifies P2P platforms as NBFC-P2P and makes it clear that lending is at the investor’s own risk. Regulations mandate:

• Maximum exposure to a single borrower: ₹50,000 per lender
• Total exposure across platforms: ₹50 lakh per investor (with net worth certificate)
• Platforms cannot provide guaranteed returns or principal protection
• Platforms must disclose default rates and recovery metrics (but methods vary across platforms)

How to Reduce Risk (but not eliminate it)

• Spread money across hundreds of borrowers, not a few
• Withdraw interest every month instead of compounding everything
• Avoid highest-yield loans (they often have highest delinquency)
• Select platforms that show real-time NPA and recovery data
• Allocate only a small % of your portfolio to P2P (1–3% for most people)