HomeMedia CenterHow P2P lending can be a route to creating financial inclusion

How P2P lending can be a route to creating financial inclusion

BHAVIN PATEL

P2P lending as a technological invention has immense potential and will strive to restructure the financial sector and in turn bridge the widening financial gap

We live in an ever-evolving technology-driven era, impacting our everyday lives. The ‘millennials’ across various geo-demographics have the advantage of being in a technology-developing world. We are digitally equipped, right from gathering global information to networking, ordering food, shopping, and almost for everything.

Owing to this massive transformation of the digital world, businesses have risen in terms of quality, quantity and scale. This form of technology has given birth to a proliferating industry called the fintech industry, a combination that allows technology to enhance financial services.

For years, banks have had a monopoly in lending money to businesses and individuals. However, the 2007-08 financial crisis created a havoc, rapidly-expanding the funding gap. This led to the advent of a niche fintech vertical, peer-to-peer (P2P) lending.

The industry looks to address the very basic credit requirements of a major chunk of the population. In the current scenario, banks generally take more than a week to process the entire loan application. This can be a long time for someone with an immediate requirement like a medical emergency. Banks have also seen an increase in the number of loan application rejections. Only the ones with a strong credit score, typically a 750 out of 900, are able to get loans. Furthermore, one also needs to be a good salaried individual, with ly two years of quality corporate standing.

Here, P2P lending platforms come as life savers. The eligibility criteria is simple with minimum salary requirements. These platforms understand the users’ financial needs far better, enabling loan approvals and disbursals within two-three working days. The rise of P2P lending worldwide is mainly due to people projecting low credit scores or reasons that are unusual for banks in funding. P2P lending platforms enable a majority of such individuals in getting quick and easy loans. It also acts as an innovative platform for investors to lend their surplus funds to borrowers for better returns.

The geographical reach of a P2P lending platform is far superior, with the major differentiator being its online interface. Such digital financial services play an important role in supporting the objective of financial inclusion. Anybody, from the remotest areas, having access to internet, can be eligible to get/give a loan. Having said that, P2P lending platforms follow a stringent verification model. The traditional underwriting processes adopted, have evolved with technology, proving beneficial in reducing the default rate of borrowers. There is still a lot of scope of advancement in this direction, towards which few players have already started gearing up.

In the age of digitisation where almost everyone has access to internet, such platforms have the potential to change the financial graph of a country. Although relatively young, the fintech market is undergoing a phase of rapid growth. It is forecasted to cross $2.4 billion by 2020, as per reports by KPMG India and Nasscom. A promising growth lies within the Indian market which can attain a size of $4-5 billion in the next five-six years. P2P lending as a technological invention sees an immense potential and will strive to restructure the financial sector and in turn bridge the widening financial gap. Moreover, the segment’s ability to use technology innovation to break geographical boundaries ly will contribute to our goal as a nation for financial inclusion.

The author is the CEO and founder, LenDenClub

Credit: DNA India

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

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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.

** Average value mentioned is the weighted average of simple interest received by lenders

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