The Pakistan Securities and Exchange Commission (SECP) has approved to enable lending/licensed non-banking finance companies (NBFCs) to conduct peer-to-peer (P2P) services.
On Monday, the SECP issued a S.R.O.436(I)/2022 requesting that draught modifications to the Non-Banking Finance Companies and Notified Entities Regulations, 2008 be issued.
The new laws define “P2P Services” as “services offered by a lending NBFC licenced under these regulations for facilitating P2P lending transactions through the P2P lending platform,” which will encompass platform providing and P2P lending operations.
According to the notification, “Peer-to-Peer Lending” or “P2P Lending” refers to the extension of loans by a lender to a borrower through a P2P Lending Platform, where the Platform is an intermediary that provides P2P services to participants who have entered into an agreement with that platform to lend or borrow money through an online medium or otherwise.
According to the rules, a lending NBFC with a current licence can apply to the Commission for approval to operate as a P2P Service Provider if it meets the following criteria:
Over and beyond the minimum equity requirement established in Schedule I of the Non-Banking Finance Companies and Notified Entities Regulations, 2008, it must have a minimum extra equity of Rs. 20 million or such greater amount as the Commission may notify.
It must have the technological, entrepreneurial, and managerial resources to provide these services to the participants.
It must have a sound business model in order to operate as a P2P Service Provider.
It must present a strategy for putting in place a reliable and secure information technology system.
It will contribute at least 15% of each loan given through the platform, or such a larger proportion as it may negotiate with lenders, provided that the agreed loan contribution is equal in terms of rights, conditions of recovery, and payback to lenders.
A P2P service provider will store and process all data relating to its activities and participants on hardware, within Pakistan or as permitted by the Commission, and conduct due diligence on the participants; conduct credit assessment and risk profiling of the borrowers, disclose it to lenders, and provide advice relating to P2P services on the credibility of borrowers, determining the creditworthiness of borrowers, extending a loan to borrowers, and determining the creditworthiness of the borrowers.
It will lend money to borrowers/participants in transactions, ease loan distribution and repayment, and set the conditions of the loan, including extension, renewal, and so on.
According to the SECP regulations, a P2P service provider must obtain the participant’s prior and explicit consent before accessing its credit information, as well as establish systems and controls for keeping accurate and up-to-date records of investors’ monies held, disbursed, recovered, income, and expenses charged, among other things.
A borrower’s total loans taken across all P2P Lending Platforms at any one time would be limited to Rs. 1,000,000, while a single lender’s exposure to the same borrower across all P2P Lending Platforms will be limited to Rs. 500,000.