Peer to peer lending
- 1. -Pooja Patel
- 2. Peer-to-peer lending (P2P) is a method of debt financing that enables individuals to borrow and lend money - without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios. The advantage to the lenders is that the loans generate income in the form of interest, which can often exceed the amount interest that can be earned by traditional means (such as from saving accounts and CDs). Plus P2P loans give borrowers access to financing that they may not have otherwise gotten approval for by standard financial intermediaries. The method is not without its disadvantages as the lender has very little assurance that the borrower, who traditional financial intermediaries may have rejected due to a high likelihood of defaults, will repay their loan. Furthermore, depending on the lending system employed, in order to compensate lenders for the risk that they are taking, the amount of interest charged for peer to peer loans may be higher than traditional prime loans.
- 3. Profit Oriented No prior relationship between lenders and borrowers Online Transaction lenders may often choose which borrowers to invest in, if the P2P platform offers that facility The loans can be unsecured or secured and are not normally protected by government insurance.
- 4. Online investment platform to enable borrowers to attract lenders and investors to identify and purchase loans that meet their investment criteria Development of credit models for loan approvals and pricing Verifying borrower identity, bank account, employment and income Performing borrower credit checks and filtering out the unqualified borrowers Processing payments from borrowers and forwarding those payments to the lenders who invested in the loan Servicing loans, providing customer service to borrowers and attempting to collect payments from borrowers who are delinquent or in default Legal compliance and reporting Finding new lenders and borrowers (marketing)
- 5. There were over 30 peer-to-peer-lending platforms in India in 2016.Even with first-mover advantage many sites were not able to capture market share and grow their user base, arguably because of the reserved nature of Indian investors or lack of awareness of this type of debt financing. “All the P2P loan platforms will be treated as non-banking financial companies (NBFCs) and will be brought under the ambit of the banking regulator. “ as on Sept 21,2017. However, peer-to-peer lending platforms in India are helping a huge section of borrowers who have previously been rejected or have failed to qualify for a loan from banks. Peer to peer lending has helped consumers with no or poor credit scores get loans in categories such as consumer lending, small business lending and property lending.
- 6. The online P2P lending market in India is at a nascent stage, but has picked up pace over the past two years. While the overall internet-based alternative finance industry registered transactions worth more than $57 million between 2013 and 2015, online peer-to-peer or marketplace lending saw loans with a cumulative value of over $2 million disbursed during the same period. The launch of India’s Digital Stack that includes Aadhar , eKYC and digital payments is paving the way for the country’s shift towards a cashless economy. Recent government policies and initiatives favor the fintech sector and have been encouraging innovation in products through a wide-spread adoption of technology in the financial sector The Indian P2P lending sector currently has some highly promising players that will propel growth in the industry on the basis of a strong back-end system and robust processes. .The year 2017 is expected to be the year of financial technology, with alternative lending and investment products like peer-to-peer lending set to be driving forces for the latest iteration of the fintech revolution in India.
- 7. Futures is a new asset class for investors: ( Eg. Faircent.com has consistently delivered net returns upwards of 18% per annum to its majority of lenders.) A significant factor holding the online P2P lending market back is the lack of regulation in the sector. The absence of an overarching regulatory framework to establish guidelines for the sector is one of the major reasons behind the distinct dearth of VC investments into Indian P2P lending start-ups.
- 8. Thank You