Islamic Finance 

India’s first Shariah-compliant P2P platform targets growing vehicle finance market

| 27 August, 2018 | General
 Syed Ameen Kader, White Paper Media
India’s first Shariah-compliant P2P platform targets growing vehicle finance market
Photo: A sales executive speaks on his mobile phone as he stands in between Maruti Suzuki cars inside a showroom in New Delhi April 9, 2013. Picture taken April 9, 2013. REUTERS/Adnan Abidi

For the first time, Indians seeking vehicle financing have the option to do so in consonance with Shariah. The peer-to-peer (P2P) platform offered by Bengaluru-based fintech start-up ECW Consultants uses the ijara rent-to-own model.

“Since our business model is Shariah-compliant, it works well for those who want to stay away from interest-based financing. Such people do not have many such options in India,” Arshad Mirza, ECW Consultants chief technology officer, told Salaam Gateway.

“Most of the existing companies are currently using the P2P model purely for interest-based lending,” Mirza added. launched in July 2017 in a market of around 50 P2P platforms that include Faircent, I-Lend, India Money Mart, Rupaiya Exchange and LenDenClub.

ECW has been certified Shariah-compliant by TASIS, a Mumbai-based Shariah advisory, auditing and screening firm that has provided similar services for a number of financial companies and their products, including Tata Mutual Fund, Bajaj Allianz and General Insurance Corporation of India. 

Shariah compliance does not mean ECW will target only Muslims. “Our offering is just as suitable for the rest of the population in India,” said Iftekhar Rahi, the company’s head of sales and marketing.

“The model gives much better returns than bank fixed deposits, with lower risk and unpredictability compared to equity investments,” Rahi said.

ECW claims the platform has facilitated financing for 20 vehicles for a total value of 10 million Indian rupees ($143,000) since March, and it currently has more than 1,000 registered users, including investors and borrowers.

“Most of our buyers are those who have knowledge of P2P platform funding rates or prefer partnership or risk-sharing funding for religious reasons,” Rahi said.

The company doesn’t offer other forms of Islamic vehicle financing such as murabaha (cost-plus profit) as it is not in the business of buying and selling vehicles.


Vehicle financing companies like ECW are buoyed by India’s growing automotive market. 

With over four million units sold, India overtook Germany to become the world’s fourth largest automobile market last year, registering 9.5 per cent growth in passenger and commercial vehicle sales compared to 2016, according to data released in January by the Society of Indian Automobile Manufacturers (SIAM), the apex industry body of India’s vehicle and vehicular engine manufacturers.

In the second quarter of 2018, sales of passenger vehicles grew by 13.32 per cent over the same period last year, according to data released by SIAM.

“India’s vehicle segment has been witnessing continuous growth due to the growing needs of the urban and rural populations. We feel the P2P model is the best option to cater to this large vehicle financing segment,” said Rahi.

Global consultants Ernst & Young (EY) estimated the country’s automotive market to grow at a CAGR of 13 per cent by value from 2016 to reach $300 billion by 2026.

It said India currently has a healthy LTV (loan-to-value) ratio of 72 per cent, on par with developed countries, and forecasted the new passenger vehicle financing market to more than double in size to 1,636 billion rupees during the period 2015-2020.


Almost three-fourths of India’s current new vehicle finance market is captured by private and public sector banks. Non-banking financial corporations (NBFCs) and captive financing by manufacturers or distributors account for the rest.   

Being a relatively new option, P2P financing platforms in general face tough competition from major banks and other financing companies.

Rahi said’s funding rates are better than other P2P platforms and it does not have any “hidden costs”.

“Although banks offer cheaper rates than our platform, the customers eventually end up paying more as bank loans are longer in tenure, typically five to seven years, and have many hidden charges,” he said.

Unlike other financiers that earn interest on a loan, Rahi said passes on the entire benefit to the participants. “We charge only 2 per cent platform fee from investors and 2 to 3 per cent from buyers. So in that sense, it is not really a processing fee,” he said.

Since the rates are market-driven and determined by a demand and supply matrix, ECW expects to be able to reduce the rates further as more investors join the platform.


P2P financing has gained momentum in India in the last couple of years, with the 50 or so platforms carrying outstanding loans estimated at 500-600 million rupees in 2017, according to Indian credit rating agency CARE Ratings.

The country’s P2P market is expected to grow to $4 billion by 2022 as the model matures, according to a July 2017 report by PricewaterhouseCoopers. This is 160 times the P2P lending size in 2017.

The Reserve Bank of India (RBI), the country’s central bank, announced new guidelines in October 2017 to regulate the P2P sector, bringing the platforms under the regulatory ambit of non-banking financial corporations (NBFCs). This created a new category, NBFC-P2P.

All existing P2P platforms were asked to seek certification as NBFC-P2P firms within three months. ECW applied for the NBFC-P2P licence in December and relaunched in March this year after fulfilling all compliance requirements although it has not, to date, received official certification from the RBI.

NBFC-P2Ps are not allowed to take more than 50,000 Indian rupees from a single lender for any single deal.

As opposed to conventional banks, which follow the more stringent banking regulations, NBFCs work as money management firms without having to acquire a fully-fledged banking licence. They have the freedom to formulate their own business models in line with RBI guidelines. 

While India doesn’t permit financial institutions to offer Islamic products under the conventional banking or insurance regulations, NBFCs often use alternative routes to develop financial products based on the principles of Shariah that don’t violate regulations.  


The biggest risk in the P2P financing business is of a default by borrowers, Mirza said. To mitigate this, ECW claims to have adopted a stringent due diligence process for every financing application.

“We do physical verification of the buyer’s residence, obtain address proof, identification proof and income proof. We also have stringent approval criteria where we reject cases that have very low credit score (CIBIL below 600) or where the EMI (equated monthly installment) to monthly income is greater than 50 per cent,” he said.

Based on the various inputs, the company arrives at an ECW credit score and categorises the deal as low, medium or high risk. Only medium and low risk deals are listed on its platform. 

Since ECW is responsible for collecting EMIs every month or recovering the money in the case of default, the company is trying to build the requisite expertise in-house or planning to outsource the job to recovery agencies/legal firms where necessary.

“We are also in the process of setting up e-NACH (auto-debit) on our portal, with the help of Razorpay, our payments partner. This would help speed up the process and also eliminate a lot of the administrative work involved in setting up the auto-debit,” said Rahi.


The P2P lending firm feels that India’s vehicle finance market is so big that it cannot be catered to in a single phase of business growth.

ECW, which began operations by focusing on the salaried class of passenger vehicle users, will add financing of commercial vehicles in the next phase.

It also facilitates financing for pre-owned vehicles, which is also a fast-growing market in India.

The company is boot-strapped and has not taken funding from venture capitalists or other institutional investors. “For a new concept like ours, raising funds at a good valuation, without over-diluting the promoters’ stake, is not easy. And without raising funds, attracting the right talent and growing aggressively could become a challenge. Hence we have to strike the right balance while going for fundraising,” said Mirza.

In the next five years, ECW said it expects to disburse around 2.5 billion rupees in vehicle financing, and have 5 billion rupees worth of assets under management.

“Even then, we would only have tapped 0.1 per cent of the vehicle finance market in India,” Mirza said.

At the end of the day, the market is large enough for everybody to have a good share. “The size of the pie is only increasing. So the potential and scope for growth are huge,” said Mirza.

($1 = 70 Indian rupees)

(Reporting by Syed Ameen Kader; Editing by Emmy Abdul Alim

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