The Dawn of P2P Lending in India
Peer to peer lending in India is still in the nascent stage. Currently, there is around 30 peer to peer lending companies in India. However, its emergence as an alternative form of investment is taking the Indian financial community by surprise.
The concept of P2P lending first emerged in the UK. But, it was not until 2012 that this sector started taking its root in other parts of the world such as Australia, France, China, United States of America, Germany and New Zealand. The peer to peer lending market is the largest in China. Did you know that peer to peer lending in India is expected to become Rs30,000 crore market by 2020?
Loans have been traditionally the domain of banks and financial institutions. But, they are not able to meet the existing demand for unsecured loans. Also, they are reeling under the pressure of non-performing assets for quite some time. Moreover, after the demonetization and digitization drive, the cash crunch has become more severe, due to which the demand of borrowers remains unmet. At the same time, investors with low risk appetite are apprehensive about investing in banks due to low returns. There is also a group of investors who are always looking to add new instruments to their portfolio. The peer to peer lending companies in India is bridging the gap between the borrowers, investors and personal loan lenders.
The borrowers with low credit score, poor credit history or whose loan applications are rejected by banks can now access the huge database of personal loan lenders on the P2P lending platforms such as LenDenClub.
The investors can start with an investment as low as Rs.5,000, earn interest between 12.5-35% and make a calculated investment based on their risk tolerance and returns they wish to fetch. The profile of borrowers is verified by the P2P lending companies, so as to minimize the investment risk for the lenders.
The registration process takes just a few clicks on the P2P lending platforms. Both borrowers and lenders have to adhere to KYC norms, thereby making P2P lending a 100% legal financial instrument. All transactions are kept transparent to reduce the chances of defaults. Ever since RBI has announced the draft guidelines to regulate this sector, it has become even more attractive to both investors and borrowers.
P2P lending is here to stay in India. It is only a matter of time that it becomes the most sought after financial vehicle to seek or disburse unsecured, short-term or emergency loans.