Peer to peer lending in India is witnessing impress growth owing to increase in demand of online loans and alternate credit instruments. The RBI regulation and digitization are also boosting the growth.
The peer to peer lending in India is expected to reach $50 market size. The sector has witnessed an impressive growth over the past two years, and the outlook will only get better as RBI has taken it under its wing.
The demand for personal loans has gone up considerably. According to RBI, personal loans grew 19.4% in value in March 2016 as compared with 15% in the year ago period. However, there isn’t enough supply of loans to meet the demand. It is no hidden fact that borrowers have to go through cumbersome and time-consuming loan application process to avail loans from banks and other financial institutions. Owing to the ease of borrowing from peer to peer lending companies in India, borrowers are now turning to online personal loan lenders.
As the number of borrowers increase, there is more opportunity for the personal loan lenders to build a better P2P lending portfolio and earn higher returns. Right now, lenders registered on peer to peer companies in India like LenDenClub earn interest in the range of 12.5% to 35% on P2P lending platforms, which is higher than traditional investment instruments.
RBI intervention is another factor that is fuelling the growth of peer to peer lending in India. RBI has proposed giving Non Banking Financial Corporation (NBFC) to peer to peer lending companies in India. It has also announced various other guidelines to safeguard the interest of all stakeholders – lenders, borrowers and P2P lending platforms. Experts also predict that P2P lending portals will be able to access credit bureau data, which will result in lesser defaults on P2P lending investment.
The recent demonetization drive has reduced bank deposit interest rate further, real estate market is dwindling and the stock market is always uncertain. So, investors are now keen on exploring P2P lending as an alternate credit instrument.
The emphasis of the ruling government on digitization has also provided a further boost to the P2P lending market in India. An increasing number of lenders and borrowers, especially millennials, are moving towards cashless transactions. P2P lending sites are using technology to enable cashless loans, quick processing of loans and reduce communication barriers between lenders and borrowers.
All these developments indicate that peer to peer lending in India will become more organized and transparent in a few years time. It holds tremendous potential and will only strengthen its roots further in India.