Are P2P money lending apps legal in India?*

THIS IS NOT LEGAL ADVICE.

With that preamble out of the way, consider the following actions:

  1. Sleep at 2AM
  2. Eat Masala Dosa at 2PM
  3. Set the MRP of Dove soap at INR 90
  4. Hire this job applicant
  5. Expand from rideshare to EV scooter business.

Is it written in the law books that they are permitted?

Obviously no.

Does it mean that they are illegal?

Obviously not.

Then, are they legal?

Hmmm.

As you can see, we can’t establish that these actions are legal yet we’re reasonably sure that they are “not illegal”.

We also know that they are performed by individuals / corporations regularly without any legal action being taken against them.

Again, this is not legal advice but it’s said that, in a democracy, everything is legal except that which is illegal i.e. explicitly forbidden in law books.

Now, coming to your specific question about P2P Money Lending Apps in India.

Let me quote the following passage from my blog post entitled Fintechs Need Marketers And Lobbyists – Not Lawyers:

Startup success in any industry is driven by speed and innovation.

More so in a relatively old industry like financial services, where traditional banks eventually wake up and do most things that can be done under the purview of existing laws, especially since they have a solid track record of partnering with technology suppliers for ages. Sometimes, when fintechs show the way to play footloose with regulation, a few banks have turned fast followers and figured out a way to deliver even better experiences e.g. PayZapp.

Therefore, opportunities for fintechs – and startups in heavily regulated industries – are often restricted to “Regulatory Gap”, which I define as something that lies in the twilight zone between “Not Legal” and “Not Illegal”. This is how these startups interpret these terms:

  1. “Not Legal” means there’s no law on it.
  2. “Not Illegal” means it does not violate any existing laws.
  3. “Not Illegal” does not mean “Legal” and “Not Legal” does not mean “Illegal”.

To put it colloquially, Regulatory Gap is something that’s neither permitted nor banned by law.

If I were to take the liberty of speculating, I’d say that many P2P money lending apps in India leverage Regulatory Gap – but I’m not sure.

*: This is the original question I answered. I’m repeating it to help me make sense of my answer in case it’s moved to / merged with some other question that I didn’t answer.