High returns on P2P lending in China turned into a nightmare for investors, how safe is it in India?

economictimes.indiatimes.com:

Wangdaizhijia, a Chinese website tracking the industry, reported that 300 P2P platforms went out of business in the first half of 2018 itself. Fast forward to today, the industry is almost extinct in China.
Why is this story worth retelling five years later in the Indian context? The answer is that almost like déjà vu, history often repeats itself in different parts of the world.

In 2023, several patterns of the Chinese P2P ecosystem have found their way into India. Here are some parallels that the regulators and investors need to watch out for.
Intermediaries turn fund managers
A P2P platform's job is to enable lenders to choose borrowers they feel comfortable lending on a predetermined interest rate based on the risk profile, past credit history, and other criteria.

The platform receives funds from a lender and passes them onto the borrower. It returns the money to the lender when the borrower pays interest or repays the principal amount and makes money by charging a nominal matchmaking fee or commission from both parties.

If the borrower defaults, the lender loses principal and interest, and the platform loses its commission from the borrower. The lender can only withdraw funds when the borrower repays.
The platform does not need to maintain its balance sheet.

However, given the Chinese investors' love for 'guaranteed' investment products (in fact, you can replace India with China, and the rest of the paragraph from hereon would still be perfectly valid), most P2P platforms became creative in offering any-time liquidity and zero-default guarantees to lenders. The way to manage this innovation was to pool the money from lenders on their balance sheets and hold back some funds to ensure zero-loss and anytime liquidity