P2P lending is the practice of lending money to individuals through an online platform that connects lenders to borrowers. This mode is useful for both lenders and borrowers as the former can earn a higher interest rate (compared to a bank savings account or many other debt instruments) and the latter at lower rates than banks or non-banking financial companies. (unsecured loan). NBFCs) offer. There are around 20 P2P lenders in India with a combined outstanding loan book of around ₹5,000 crore. These entities are regulated by RBI.
Rajat Gandhi, Founder and CEO, said, “We disburse loans of around Rs 130 crore every month. In the last one year, we have grown more than 30 times.” Faircent, which claims to have a loan book of ₹2,000 crore. He further added, “Our volumes picked up after we launched a range of new products for both lenders and borrowers. At the portfolio level, we have been able to deliver 12-15% returns after adjusting for expenses and defaults.”
Most of the lenders filling the roster of major P2P platforms are return-hungry retail investors and traders with surplus cash flows. Many high net worth individuals and family offices are writing large checks in favor of borrowers on these platforms. They are driven to lend on the platforms as their traditional fixed income investments – such as bank fixed deposits, savings accounts, loan MFs, debentures and corporate FDs – are yielding 3-7% on a yearly basis.
diversified investment portfolio
“Apart from P2P lending, there is no asset class that is giving 14-16% annualized returns in the current scenario,” said V Shankar, Founder-Director, P2P platform i-Lend. disbursements last year, when the first wave of Covid-19 hit the country. “We have lenders asking us to restart operations. There is a lot of interest now. Macroeconomic factors are looking good, and people have substantial savings because of WFH, more willingness to lend at higher interest rates. Is.”
For lenders (investors), lending on P2P platforms is a way to diversify their investment portfolio even more. Many a times, they route their stock market gains or monthly surplus to generate higher returns. Many financial advisors and wealth managers are also advising their clients to lend on P2P platforms, but they do not recommend exposure to more than 10% (of the total investment portfolio) in this asset class.
Lenders are turning to P2P lenders as most banks and NBFCs have gone slow in offering personal loans to customers with relatively low credit scores. In addition, many fintech and digital lenders (particularly small-ticket, short-term, payday loans) were taken out of business by law enforcement agencies a few months ago because of unethical collection methods for debt collection. were involved. This has forced borrowers to tap peer-to-peer networks for funds. Most P2P lenders have a loan ticket size between ₹50,000 and ₹70,000 – often for a period of 12 months. These loans are disbursed at 10-18% interest rates depending on the credit profile of the borrower.
Bhavin Patel, Founder-CEO, Lenden Club said, “The quality of borrowers has gone up as we also get a lot of bank/NBFC customers these days. Now there is a lot of awareness about credit.” ₹700 crore book. “Even new-to-credit customers are knowledgeable about various loan products. This has helped the P2P business grow significantly over the past three years. Compared to pre-Covid levels, we Now doing 12 to 15 times more transactions,” he says.