P2P lending is gaining a major foothold in India. Four major operators discuss the prospects and how technology is the distinguishing factor in the operations:
When P2P lending started in China in 2005, it was only a $2 million industry. Today, it has grown to be a $164 billion marketplace. India has only 10% of consumer debt as a percentage of GDP. So, there is a huge opportunity here as consumption grows with a younger population forming a major bulk of the total. More so, SMEs are always on the lookout for less cumbersome, faster solutions with lower rates and lower transaction costs. The demand for P2P lending is therefore poised to receive a huge fillip. It can easily become the third leg after banking and NBFC.
Having said that, the P2P industry in the country is still small. While P2P lenders can play an active role in meeting the funding needs of the SMEs and small time entrepreneurs, there is another role possible – in bringing in financial inclusion. If they choose to assume a rural focus, they can address the needs of the agriculture sector, the village based small cottage industry units and individual artisans, an area which the traditional lenders hesitate to enter. Their procedures relating to documentation, KYC and evaluation of creditworthiness are less cumbersome and less time consuming, ensuring faster distribution of finance. The challenge, however, could be the need to have better and faster connectivity and extension of the technology infrastructure to service these clients.
Will P2P lending firms create a synergy with the traditional lending institutions, especially the newly created payments banks and small finance banks? It is difficult to say although it remains a fact that they will impact the business of the latter. What is encouraging is the development that some of the leading eCommerce firms are working in tandem with P2P lending firms.
We bring an assessment of the operations of four leading Indian P2P lending firms:
Faircent.com is India’s largest P2P lending website, which offers retail and business loans. It provides a platform where highly curated borrowers and lenders interact among themselves to decide a mutually agreeable rate for their transactions.
Monexo is a Hong Kong based P2P lender, which just started its India operations. It believes that the drive for financial inclusion is beyond bank account opening.
i2i Funding fulfils the twin objective of providing alternative investment options to investors as well as offering affordable personal loans to borrowers. Its uniqueness is that it evaluates the credit risk of each of the loan projects, post which it assigns risk category and recommends an appropriate interest rate for that project.
Lendingkart is a fintech company that makes working capital finance available at the fingertips of entrepreneurs, so that they can focus on business instead of worrying about the gaps in their cash-flows.
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