What is Peer-to-Peer Lending –
With peer-to-peer lending, borrowers take loans from individual investors who are willing to lend their own money for an agreed upon interest rate. Peer to Peer lending is already a hugely successful model for alternate financing across the globe.
With P2P lenders coming under RBI purview, there will be better transparency in the system and higher confidence amongst participating lenders and borrowers. In the global space, P2P lending has been growing year on year in terms of both volume and number of players. Globally, USA, UK and China markets have been dominant in terms of P2P lending. In India, the industry is at very nascent stage and has limited operating history. Various reports mentioned that P2P lending will continue to grow given its current nascent stage.
In India, more than 70 percent people are rejected from availing a personal loan from bank or NBFC due to risk portfolio and most of the time loans are available only to salaried employees with annual gross salary of Rs 3 lakh or higher. However, P2P lending market place works differently, it uses multiple parameters to determine creditworthiness of borrowers and they do not decline a loan application even if the borrower’s salary is considerably low. Technology has made the process of lending and borrowing simpler to get quick cash or earn great returns. The process is initiated when the borrower applies online for a loan and post application approval, the lenders fund the loan amount.
What’s new for Borrowers & Lenders?
For borrowers, the P2P market place enables a swift application process with little documentation, faster decision-making compared to traditional financing institutions, and they also get competitive interest rates and repayment flexibility. Similarly, lenders get better return on their investment, specify risk aversion/return and get quick returns on investment.