Introduction To Peer To Peer Lending In India

The advent of online platforms providing easy access of credit to an aggressive breed of loan seekers has been bridging the gap of unavailability of formal credits.  Peer to peer (P2P) lending or marketplace lending has been a concept that has been proliferating as an alternative for easy access to loans. Although naïve to the Indian economy; the concept of P2P loans is not new to the society.

Source - Lendingclub

India has had a long tradition of carrying out community-based lending and financial transactions in the forms of chit funds, thrift societies, and co-operative societies extending credit to its members and loan seekers. Mortar financial institutions, such as banks, faced restrictions in their scale of operation because the credit assessments were largely decentralized and were based on credit officer’s judgement further restricting easy access of credit to the masses.

Also read : How Peer to peer lending is beneficial for borrowers

A large part of credit lending was collateral backed, forcing a number of borrowers to take loans from money lenders at higher interest rates. Hence, the unorganized sectors of lending have had spread its branches across the nation due to lack of access of credit through traditional banks.

India has been estimated to be one of the biggest offline peer-to-peer (P2P) lending markets in the world, as people circulate nearly 50 per cent amongst friends, families, and communities they dwell in. The tremendous improvement in the lending infrastructure in the country has provided the credit seekers an alternative to these traditional organised and unorganised lending institutions. The huge untapped potential for providing credit to 2/3rds of the country, with proper risk and credit assessment has led to the emergence of a new breed of online lending platforms in India.

Peer-to-peer lending provides effortless credit access by establishing connection between the providers of capital and the borrowers who need the credit. These firms act as a third party between the borrower and the lender and make the whole process of getting the credit easier and less painful. The borrower gets credit through P2P lending at a much lower interest rate and within a few business days which is much faster than the typical process at any traditional lender. Faircent, I-lend, Lendbox and IndiaLends are some of the P2P firms giving credits to people all over India.

Lending platforms like Lendbox , Lenden,and Faircent are bringing together borrowers and lenders and offers complete transparency. The borrowers get the benefits by low rate of interests and empower the investors towards gaining higher returns. Currently, the platform is offering personal finance solutions for a short term.

The peer-to-peer platforms emerged after the traditional banks, post 2007-2009 financial crisis, failed to provide credit to the borrowers and the low-interest rates left investors searching for higher-profitable assets. The marriage of interests of the credit seeking borrowers and the lenders has helped the P2P platforms proliferate.

The P2P lending platform also provides more privacy to the borrower compared to any other traditional lender. The loan applications presented to the investors include the credit score, annual income and the reason for applying for loan of the borrower. The investors bid on the applicants they find most compelling and which have a good credit score. Also the investors are given the facility to question the applicants through a message system. By funding a loan as an investor through a P2P platform, you get to play in a space where you are getting returns higher than you might get through corporate bonds.

Hence, P2P lending platforms provide the investors an opportunity to invest in a space where they are likely to yield higher returns. However, this platform is still not well known in third world countries and is in its nascent age. As this fairly new platform will proliferate in India, it will surely attract more investors to bid their money in different portfolios of lenders.

Read More

Why P2P Lending is a better option for Investors?

Giving investors an attractive opportunity to put a part of their fixed-income portfolio into something where they can yield more profit compared to other alternatives, peer to peer lending has been emerging as a better option for financiers. Commonly referred to as ‘marketplace lending’, this platform establishes connection between the providers of capital and the borrowers who need the credit. These platforms such as Lendbox act as a third party between the borrower and the lender and make the whole process of getting the credit easier and less painful.

source

Also read : 6 Reasons why you're not getting good returns on your investments

A piece of a portfolio in P2P lending makes sense for a wide range of investors as it is not correlated with other kinds of fixed-income products, it's a monthly yield merchandise and in certain markets, it is reasonably liquid. So, proper investors who diversify their investments across the platforms in many low grades get comparatively higher yields and consistent returns. Also, as the loans are paid back, the investors have cash building up in their accounts simultaneously, which they can reinvest into additional loans and continue to build and diversify their portfolio.

The peer-to-peer platforms emerged after the traditional banks, post 2007-2009 financial crisis, failed to provide credit to the borrowers and the low-interest rates left investors searching for higher-profitable assets. The marriage of interests of the credit seeking borrowers and the lenders has helped the P2P platforms proliferate. This platform gives the investor a chance to bid his/her money into the portfolio of a lender he feels reliable and confident about. The loan applications presented to the investors include the credit score, annual income and the reason for applying for loan of the borrower. Also the investors are given the facility to question the applicants through a message system. 

By funding a loan as an investor through a P2P platform, you get to play in a space where you are getting returns higher than you might get through corporate bonds. The investors bid on the applicants they find most compelling and which have a good credit score. However, this platform is still not well known in third world countries and is in its nascent age. As this fairly new platform will proliferate in India, it will surely attract more investors to bid their money in different portfolios of lenders.

Read More