Finnovation: P2P Lending
In today’s world of internet, web services are escalating and prospering. We have cab companies like Ola uber and e-retail giants like amazon, accommodation services like AirBnB and OYO rooms all of these that operate online are the most successful businesses. Similarly, Peer to peer lending or P2P, a new concept for some, has been there around for a decade. It’s a great innovation as it transacts directly between individuals for loans. P2P platforms don’t lend their own funds rather matches borrowers seeking loans with lenders willing to lend through the P2P platform.
BY RADHIKA SETHI | 3 Mins Read
What is Peer-to-Peer lending?
P2P loans cuts out the financial institutions as middlemen enabling lending between individuals. It is also known as crowd lending or social lending.
The absence of intermediaries hence the lower cost involved makes P2P an attractive investment opportunity. And also, helps people who couldn’t obtain bank loans get loans online.
Lenders get a higher rate of interest than usual and borrowers escape the hefty paperwork and collaterals usually required. One of the best advantage of P2P lending is that investors start earning from the next month itself which helps them to roll their profits back for further re investment.
How Peer-to-Peer lending works?
There are P2P lending websites that connects borrowers directly to investors
About P2P lending websites:
1. The site sets rates and terms of the transactions and enables it
2. There are a wide range of interest rates depending upon the credibility of the borrower
3. The online portal charges a fee which is quite nominal.
4. Process involved:
2. There are a wide range of interest rates depending upon the credibility of the borrower
3. The online portal charges a fee which is quite nominal.
4. Process involved:
- First, investor opens an account with the site and deposits a sum of money to be given out as loans .
- The loan applicant posts a financial profile that is assigned a risk category that determines the interest rate the applicant will pay.
- The loan applicant can check out various offers and choose one.
- The money transfer and the monthly payments are handled through the platform
1. The 6 best P2P lending platforms as per Investopedia are:
- Upstart
- Funding circle
- Prosper Marketplace
- CircleBack Lending
- PeerForm
- Lending club
P2P platforms in India
- Some of the P2P lending platforms in India are Faircent, Lendenclub, Finzy, i2ifunding, Cashkumar, Rupeecircle, Lendbox, and OMLP2P etc.
- The amount and tenure of borrowing depends on the P2P Company. For example, on OMLP2P platform, borrowers can request loan amounts between Rs 25,000 to Rs 10 lakh (in multiples of Rs 5,000). The minimum loan tenure is 3 months and the maximum 36 months.
- Minimum interest rates charged are 10.99% p.a. to maximum being 36%
Involvement of RBI
The Reserve Bank of India (RBI) has started to regulate Peer to Peer Lending platforms to protect the interests of lenders and borrowers.
In September 2017, RBI notified that all P2P lending platforms are to be registered as NBFCs and has to follow the set of guidelines that RBI published
The global P2P lending industry was valued at $3.5 billion-global in 2013 and $64 billion in 2015. It is expected to be worth nearly $1 trillion by 2050.
The Indian P2P lending market size is expected to be $ 4-5 billion by 2023.
P2P is definitely a good investment option and is here to stay. It has been doing good and has grown despite the liquidity crunch and difficult environment for NBFC’s.