Falling interest rate amid coronavirus crisis has impacted income of many investors who depended on debt instruments; those with surplus cash can consider peer-to-peer lending, which is attracting increasing interest from people willing to lend to those in need of short-term financing — whether individuals or small businesses
KEY HIGHLIGHTS
- P2P lending helps earn decent returns and bridge the credit gap in the economy
- P2P platforms connect lenders with borrowers; former earns interest and latter receives loans
- It faces a high level of risk due to unsecured lending and is suitable mostly for investors with a high-risk appetite
- Coronavirus lockdown has reduced demand for loans, but willingness to lend stays
- Risk of defaults has increased post-COVID-19, but a well-managed portfolio may still earn 12-14%
- Minimum Rs 25,000 and maximum Rs 50 lakh can be invested across P2P platforms
- Exposure to single borrower can’t exceed Rs 50,000
- A few P2P players have their lending limits within RBI’s prescribed limits
The falling interest rate has impacted the income of many investors who depended on debt instruments such as fixed deposits, bonds, debentures, government securities and debt mutual funds. At a time when the interest rate has fallen significantly, gold prices are trading near record highs with the limited scope of similar performance in near future, stocks markets are volatile and the sentiment is negative towards debt funds due to defaults and liquidity issues, investors with surplus cash are looking for new investment avenues to deploy their savings. One such investment is peer-to-peer lending, which is attracting increasing interest from people willing to lend to those in need of short-term financing – whether individuals or small businesses.