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Peer-to-peer lending startups such as Faircent eye blockchain technology

Many industry observers expect the central bank to legalise a contractual system that integrates blockchain technology as a platform by the end of the financial year.

, ET Bureau|
Last Updated: Jun 14, 2016, 06.04 AM IST
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Many industry observers expect the central bank to legalise a contractual system that integrates blockchain technology as a platform by the end of the financial year.
Many industry observers expect the central bank to legalise a contractual system that integrates blockchain technology as a platform by the end of the financial year.
BENGALURU: Peer-to-peer lending startups such as Faircent, Micrograam and i-lend are increasingly examining the potential of integrating blockchain technology into their systems to improve transparency levels, and act as a ledger system to automate and record transactions on their platforms.

These are still early days for blockchain, a distributed digital database with cryptographic safeguards that prevent anyone from altering data already recorded, and the P2P players will need to wait for the Reserve Bank of India’s approval to use this technology as a platform.

Many industry observers expect the central bank to legalise a contractual system that integrates blockchain technology as a platform by the end of the financial year. “Blockchain technology could act as an automated ledger system in recording transactions between the buyer and seller,” said Rangan Varadan, founder of Micrograam.

“This can be done without the use of cryptocurrency. This could be a transformational tool in doing payment transactions,” he said. A technical innovation of bitcoin, blockchain serves as the public ledger for all bitcoin transactions. In May, after RBI released a consultation paper, ET reported that P2P platforms were seeking clarification on the direct lending process and leverage ratio.

Presently, RBI’s consultation paper has indicated that P2P platforms cannot directly be involved in money transactions between the borrower and lender after the credit underwriting process has taken place. However, players find the manual follow-up involved with checking on individual transactions both cumbersome and time consuming.

Rajat Gandhi, founder of Faircent, said blockchain technology enables structuring of data, bringing about traceability, transparency and a layer of security. As a platform it is likely to be leveraged by any depository and various fintech sectors, he said.

“In India it is early for us, we need to reach a threshold level of 1-million transactions a day and then it would definitely be viable. We are exploring and researching into its use. By the time we get a chance to use it, it is likely that third party providers like Azure will enable us to integrate blockchain technology into our existing system,” Gandhi said.

VVSSB Shankar, cofounder of ilend, said: “Cryptocurreny being introduced in India is highly unlikely and blockchain needs a cryptocurrency in the back end. However, since blockchain is an open source, several people are working on it. It could be a matter of time before the technology evolves and we could integrate it into our system, making automated records of peer-to-peer transactions.”

According to a recent Nasscom and KPMG Fintech report released last week, there is huge scope in understanding the potential of blockchain technology in managing P2P remittances in India. The peer-topeer platforms expect to receive a second draft of the consultation paper from RBI within the next two to three months.

“The combination of a unified payment interface (UPI) along with blockchain technology could transform the payment system currently in place as soon as we get past the regulatory challenges,” said Varadan of Micrograam. “Our research in terms of implementation should be ready by the end of this year,” he added.

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