Safeguarding Investments: What Happens When a P2P Lending Platform Shuts Down in India?
Peer to Peer lending (P2P)
Apr 24, 2024
In 2016, China had more than 5,000 active peer-to-peer lending platforms. By November 2020, it had none. Investors were left holding more than 800 billion yuan of unpaid debt.
India’s P2P sector also went through a hard reset. After RBI’s August 2024 circular, industry assets fell from about ₹10,000 crore to under ₹3,000 crore, and most of the 26 registered platforms stopped originating new loans. But India’s market contracted and corrected rather than disappearing. The difference was not the lending model. It was when, and how, the regulator stepped in.
How China lost its entire P2P sector
| Year | What happened |
|---|---|
| 2006 | China’s first P2P platform launches |
| 2015 | The Ezubao scandal exposes a $7.6 billion Ponzi scheme that defrauded over 9 lakh investors. First formal P2P guidelines arrive |
| 2016 | More than 5,000 platforms are active |
| 2017 | Annual transaction volumes exceed $400 billion |
| 2018 | Platforms are collapsing weekly |
| 2020 | No platform remains operational by November. Investors hold over 800 billion yuan (about $115 billion) of unpaid debt as of August 2020 |
For nearly nine years, Chinese platforms pooled investor money, guaranteed principal and promised returns of 10% to 18% with no regulatory oversight. When rules finally came in 2015, they were weakly enforced until the sector was already failing. The China Banking and Insurance Regulatory Commission, since absorbed into the NFRA, then forced orderly shutdowns.
The lesson is specific. China’s collapse came from nine years of unregulated operation, not from a flaw in lending directly to borrowers.
India showed the same warning signs
Indian P2P platforms were registered as NBFC-P2P entities and classified strictly as information intermediaries. In practice, several went well beyond that mandate:
- They pooled investor money into common accounts.
- They offered “guaranteed” returns of 10% to 12%.
- They marketed P2P as a high-yield savings product with on-demand liquidity.
RBI’s inspection findings from June 2023 documented platforms acting as deposit takers and lenders rather than intermediaries. In some cases, repayments to existing lenders were being funded from fresh money deposited by new lenders, not from borrower EMIs. That is the pattern that preceded China’s shutdown.
The bad loans tell the story:
| Fiscal year | P2P sector NPAs | Year-on-year change |
|---|---|---|
| FY2019 | ₹14.7 crore | — |
| FY2020 | ₹25.9 crore | +76% |
| FY2021 | ₹107.9 crore | +316% |
| FY2022 | ₹191.7 crore | +78% |
| FY2023 | ₹472.1 crore | +146% |
| FY2024 | ₹1,163 crore | +146% |
Source: RBI data obtained via RTI responses to Capitalmind Financial Services, published December 2024.
Against an estimated sector AUM of ₹6,500 crore, ₹1,163 crore of NPAs implies a bad-loan ratio above 17%. Most of that trajectory came from platforms that pooled investor funds and delayed recognising defaults. Those are the practices RBI has since banned.
Four ways India’s path differed from China’s
| India | China | |
|---|---|---|
| When rules arrived | RBI regulated P2P in 2017, when the market had about 5 platforms and about ₹200 crore in AUM | First formal guidelines in 2015, by which point 5,000+ platforms were operating |
| Licensing | Mandatory NBFC registration, so only entities vetted by the central bank could operate | No licensing requirement until 2015; anyone could launch a platform |
| Role of the platform | Classified as intermediaries, not lenders, from day one | Platforms acted as de facto lenders and deposit takers |
| Borrower verification | Aadhaar verification, PAN-linked KYC and CIBIL reporting | No unified identity or credit-reporting layer; verification varied by platform |
Source: RBI Master Directions, CBIRC public records, 1 Finance Magazine.
Because the framework already existed, RBI’s 2024 intervention was pre-emptive. It came before a systemic crisis rather than after one. China’s regulator acted only after the Ezubao fraud and kept escalating until the sector was gone.
What the August 2024 circular changed
On 16 August 2024, RBI issued a circular that pulled platforms back to the intermediary model the 2017 framework intended:
| Change | What it means |
|---|---|
| Mandatory escrow via bank-promoted trustees | Lender and borrower money is held separately; the platform cannot mix them |
| Lender approval for every match | No automated or pooled matching without the lender’s explicit consent |
| T+1 settlement | All escrow funds must be transferred within one business day |
| Ban on guaranteed returns and closed-user-group matching | Platforms cannot promise fixed yields or route money to preferred borrowers |
| Exposure caps formalised | ₹50,000 per lender per borrower across all platforms; ₹50 lakh aggregate per lender; ₹10 lakh maximum per borrower |
RBI backed this with enforcement. Fines totalling roughly ₹5 crore were levied across multiple platforms between August 2024 and March 2025, and show-cause notices went to six platforms in October 2024.
On 28 November 2025, RBI issued the comprehensive NBFC-P2P Lending Platform Directions, 2025, replacing all earlier P2P rules. They add:
- A minimum net owned fund of ₹2 crore
- A 2x leverage cap
- A maximum loan tenure of 36 months
- APR-based pricing
- Mandatory credit bureau reporting
- Detailed governance and disclosure requirements
The shake-out
Industry AUM was about ₹10,000 crore in early FY2024, according to industry estimates. By March 2025, it had fallen to under ₹3,000 crore as platforms operating outside their mandate wound down or paused. In 1 Finance Magazine’s reading, the fall reflects non-compliant activity leaving the reported numbers rather than borrowers losing interest in P2P credit.
Of the 26 RBI-registered NBFC-P2P platforms, roughly 10 to 12 remain operational in some form. Only 3 to 5 are actively disbursing new loans.
| Status in early 2026 | Platforms | What it looks like |
|---|---|---|
| Active and profitable | 1 to 2 | Profitable in FY2025, NPA below 5%, new disbursements continuing |
| Active, recovering | 2 to 3 | Volumes rebuilding, operational compliance confirmed |
| Collections-focused | 2 to 3 | New lending paused; managing existing portfolios |
| Inactive or exited | 13+ | No new originations since August 2024 |
Source: RBI NBFC-P2P platform registry, company disclosures, 1 Finance Magazine.
What changed inside the platforms that survived
Underwriting. Early platforms relied on basic CIBIL scores. The survivors use layered models that combine:
- income verification and bank statement analysis
- the fixed obligation to income ratio (FOIR)
- behavioural signals
The Account Aggregator framework lets platforms pull real-time financial data from a borrower’s bank accounts and tax filings, though how far each platform uses it varies. The platforms that collapsed or exited after August 2024 were largely the ones still running on basic credit checks while marketing guaranteed returns.
Settlement. IndiaP2P co-founder Neha Juneja told 1 Finance Magazine that, apart from T+1, the 2024 directions mostly clarified rules that already existed. Escrow and the ₹50 lakh cap had always been part of the framework. What had been stretched was marketing P2P as an assured-return product with instant liquidity.
T+1 was the real operational shift. Previously, a lender could transfer ₹50 lakh in one go and pick loans at leisure. Now money is transferred and loans selected within a single-day window. She said compliant platforms have adapted and volumes are recovering.
The road India did not take
In the US and UK, the platforms survived but the individual lender was pushed out:
- United States. LendingClub retired its retail notes programme in December 2020 and bought Radius Bank for $185 million, a deal that closed in February 2021. In 2024, only 7% of Prosper’s originations came through its traditional peer-to-peer note channel, according to deBanked.
- United Kingdom. Zopa, which launched the world’s first P2P platform in 2005, got a full banking licence in 2020 and left peer-to-peer lending in December 2021. Funding Circle closed its retail investor programme in March 2022.
Continental Europe kept individuals in, but through regulated investment instruments. Mintos, launched in Latvia in 2015 and supervised by Latvijas Banka, has more than 600,000 registered investors and over €11 billion invested.
| India | United States | United Kingdom | Europe (EU) | China | |
|---|---|---|---|---|---|
| Regulator | RBI | SEC, CFPB, state laws | FCA | National regulators under EU ECSPR | CBIRC (shut the sector down) |
| Active platforms (early 2026) | About 10 to 12 | Only 1 major pure retail P2P platform left | About 15 to 20 (mostly secured) | 181 | 0 |
| Dominant model | Retail lender, unsecured consumer credit | Institutional, AI underwriting | Property-secured, institutional | Retail investing via regulated instruments | Retail with guaranteed returns (before collapse) |
Source: RBI, SEC filings, FCA register, CBIRC, ESMA register, Mintos disclosures, Cambridge Centre for Alternative Finance, platform disclosures, 1 Finance Magazine.
India is now unusual: its rules keep the individual lender as the direct counterparty in consumer credit. The exposure caps, escrow mandates and lending limits are designed to keep that access while removing the practices that damaged trust.
What this means if you lend through P2P today
The reset made the risk visible. A platform can no longer promise a return, smooth defaults out of its own spread, or hold your money in a pool. You choose each loan, your money sits in a trustee-controlled escrow, and defaults show up in your returns.
That is safer in structure, but it puts the judgement on you:
- Check that the platform is on RBI’s NBFC-P2P list.
- Ask how the platform held up through the 2024 reset.
- Look for its NPA disclosures across several quarters.
- Spread your money thinly across many borrowers.
Source: “How P2P Lending Unlocks the Spread Banks Have Kept for Decades”, 1 Finance Magazine, June 2026 (Issue 11). Data from RBI, CBIRC, Capitalmind (RTI), the Cambridge Centre for Alternative Finance, deBanked, platform disclosures and company filings.
