HomeMedia CenterP2P Lenders Grow Amid A Gloomy NBFC Environment

P2P Lenders Grow Amid A Gloomy NBFC Environment

Peer-to-peer lenders, which facilitate direct borrowing and lending via technology-based platforms, have seen continued growth in business amid a credit crunch across non-bank lenders. The 19 P2P lenders have now facilitated disbursals of close to Rs 500 crore, estimate industry executives who say that a good chunk of this growth has come in the last twelve months. While P2P lenders are registered with the Reserve Bank of India, the regulator does not release lending data for these platforms. As such, BloombergQuint could not independently verify the extent of loans given out via these platforms.

Increased Demand

Anecdotally, though, executives running these platforms say that growth has been strong. This growth has been led by borrowers of non-bank lenders who have reduced fresh disbursements due to tight liquidity conditions.

Globally, P2P lending started after the 2008 recession when institutional players moved out of active lending in the small and medium enterprise and retail loans segment due to a liquidity crunch, said Rajat Gandhi, founder and chief executive officer at Faircent, which is among the largest P2P platforms.

“Since there is a similar situation playing out in India, we have grown nearly 50x since last year. We have gone from disbursing around Rs 2.5-3 crore of loans every month to around Rs 110 crore every month as of date,” he said. BloombergQuint could not independently confirm these numbers.
India’s non-bank lenders were hit by a liquidity crunch after the collapse of Infrastructure Leasing & Financial Services in September last year. Since then, liquidity via the debt markets and banks has been constrained.

According to Ajit Kumar, founder, and CEO at RupeeCircle, smaller NBFCs have been hurt the most by the liquidity crisis both in terms of their inability to raise funding and pricing power. “These smaller NBFCs were catering to specific borrowers like micro or small enterprises who have seen credit availability reduce. As a result, we have seen our business grow in such segments,” he said.
Kumar added that lower loan disbursals from traditional NBFCs have worked to the benefit of P2P platforms that operate in specific areas like consumer finance, asset-financing, rural or MSME lending.

“The rapid growth for the various P2P platforms has not come because of tighter underwriting standards by the larger and established NBFCs but because of a widespread lack of credit in the system,” said Gandhi.

Has Supply Increased As Well?

Since P2P platforms work on individual borrowers looking to take funds from individual lenders, an increase in demand must be matched by an increase in supply for growth in volumes.

Has that happened?

Platforms have begun actively targeting retail investors in order to draw them in. “Ultra-high-net worth individuals may be deterred from investing in P2P platforms due to the regulatory caps and a lack of understanding and experience with the asset class. But there is enough capital with retail investors,” said Bhavin Patel, co-founder and CEO at LenDenClub. The platform claims to have attracted over 25,000 retail investors, who otherwise invest in mutual funds.
Similarly, Faircent has targeted retail investors by partnering with 300-odd wealth management service providers who pitch P2P investing as an alternative asset class to capital-market investments.

Monexo, another such platform, recently launched a monthly income plan and a systematic investment plan for investors. The platform’s Founder and CEO, Mukesh Bubna, believes this could act as a model for the industry to generate a consistent flow of funds.

At present, the RBI’s regulations restricts the average exposure of an investor to all borrowers on a P2P platform at Rs 10 lakh at any point of time. No single investor or lender can provide the same borrower with loans exceeding Rs 50,000, according to the RBI’s regulations.

Rajiv Ranjan, secretary of the Association of NBFC Peer to Peer Lending Platforms, said that “the past year has been a blessing in disguise as it has prompted all P2P players to look inward in terms of their technology platform and the best product mix for ensuring sustainable returns for the investors”.

Ranjan said that the industry continues to engage with the RBI and the Finance Ministry to relax or remove the investor or lending limit. Even if this happens, the industry will scale up only gradually, he added.

“At present there is no established model for the industry so in the interim each individual platform will try various permutation-combinations. It will take a couple of years for any individual player to scale-up, prove the underwriting and collection ability and only then can they convince investors to invest more going forward,” Ranjan said.

Inherent Risks
While P2P lending in India is still small, the inherent risk in the model remains an inability to manage defaults.
“Unlike microfinance lenders or some NBFCs who embed themselves in a specific lending business and geographical area, P2P lenders are distant and the collection mechanism is therefore weaker,” said Manish Jain, partner at KPMG India. “MFIs or specialised NBFC lenders are able to identify when there is stress in the environment and can advise the borrower on best ways forward, to avoid defaults, for example. P2P lenders cannot provide this financial discipline knowledge to their borrowers,” Jain said.

If there are loan defaults or dues are not collected properly, the borrowers’ credit score can be affected, he said. “This could lead to the borrower being locked-out the formalised financial system and force them to go back to the informal, money lender system.”

Credit: https://www.bloombergquint.com/business/p2p-lenders-grow-amid-a-gloomy-nbfc-environment

LenDenClub is India’s largest Peer to Peer lending platform which started operations in India in 2015. We have been helping lenders diversify their portfolio beyond traditional investment instruments ever since.

About

Lending

*Calculated as per the last 6 months’ average returns by lenders who lent for 12 months tenure

LenDenClub, owned and operated by Innofin Solutions Pvt Ltd (ISPL) is registered as a peer-to-peer lending non-banking financial company (“NBFC-P2P”) with the Reserve Bank of India (“RBI”). The Reserve Bank of India does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by Innofin Solutions Private Limited, and does not provide any assurance for repayment of the loans lent through its platform.

LenDenClub is an Intermediary under the provisions of the Information Technology Act, 2000 and virtually connects lenders and borrowers through its electronic platform via the website and/or mobile app.

The lending transaction is purely between lenders and borrowers at their own discretion, and LenDenClub does not assure loan fulfilment and/or lending simple interest. Also, the information provided on the platform is verified or checked on the best efforts basis without guaranteeing any accuracy of the data/information verification. Any lending decision taken by a lender on the basis of this information is at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower, fully or partially. The risk is entirely on the lender. LenDenClub will not be responsible for the full or partial loss of the principal and/or interest of lenders’ lending amounts.

*This is an annualized yield and is subject to the maximum FMPP tenure, which is 5 years. P2P lending is subject to high risk and may cause an entire loss of principal.
 

*P2P lending is subject to risks. And lending decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.

© 2024 LenDenClub by Innofin Solutions Private Limited | CIN: U74999MH2015PTC266499