January 29: The situation of having to rely solely on banks and financial institutions (BFIs) for loans required by the industries is now going to end. Nepal Rastra Bank (NRB) has announced the concept of 'Peer to Peer (P2P) Lending' and 'crowdfunding' and has indicated that it is going to open an alternative arrangement for loans in Nepal as well.

After a decade and a half of being in trend in the world, the central bank announced in the monetary policy of the fiscal year 2079/80 that it will conduct a study on P2P lending and crowdfunding to increase credit access to start-up businesses. Two years after the announcement, the central bank on Sunday released a concept paper on P2P lending and crowdfunding, saying that it would be helpful to increase access to credit and raise resources for the investment of small and medium enterprises.

Prakash Kumar Shrestha, executive director of the research department of Nepal Rastra Bank, says that PTP lending and crowdfunding will be suitable for individuals or organizations to get the resources they need to do business.

“PTP Lending is a loan transaction between individuals through technology,” he said, adding, “We are only in the initial stage of study of this provision which has been in practice for a long time in the world.” He said that it can be applied in Nepal too.

In Nepal, there is an increasing attraction towards banking venture capital and private equity funds to raise the necessary investment for start-ups and small and medium industries.

Siddhantraj Pandey, president of Business Oxygen Pvt Ltd, who is working in the field of alternative investment, says that the concept of P2P lending and crowdfunding, announced by the central bank, will open up new avenues.

"Until now, we have an understanding that only banks and financial institutions give loans," he said.

Although the discussion about P2P lending and crowdfunding has just started in Nepal, it has already become popular in the world a decade and a half ago.

The concept of P2P lending and crowdfunding became trending during the global economic recession of 2008 in order to collect investment from individual to individual as banks and financial institutions were unable to provide loans necessary for doing business.

Under this concept, people connect through an online platform and they give and take loans through it. In order to reduce the risk of such transactions, the concept paper points out that there is a need for regulation on online platform registration, loan limits, and interest rates. It is also mentioned that the public should be informed about its use and risks.

In the concept paper, it is pointed out that since P2P lending and crowdfunding are new concepts in Nepal, there is a need for adequate discussion and strong regulation. In the first phase, the central bank has been suggested to give licenses to some companies for such transactions and test them and proceed only on the basis of their success.

According to a study conducted by the central bank, 33 percent of the start-up businesses in Nepal have disclosed that they raise capital from ancestral property. According to Nepal Rastra Bank's SME Financing Report 2019, the share of taking loans from banks and financial institutions for start-up businesses is only 16 percent.