Peer-to-peer lending (P2P) is a method of debt financing that enables
individuals to borrow and lend money - without the use of an
official financial institution as an intermediary. Peer-to-peer lending
removes the middleman from the process, but it also involves more
time, effort and risk than the general brick-and-mortar lending
The advantage to the lenders is that the loans generate income in the
form of interest, which can often exceed the amount interest that can be
earned by traditional means (such as from saving accounts and CDs).
Plus P2P loans give borrowers access to financing that they may not have
otherwise gotten approval for by standard financial intermediaries.
The method is not without its disadvantages as the lender has very little
assurance that the borrower, who traditional financial
intermediaries may have rejected due to a high likelihood of defaults,
will repay their loan. Furthermore, depending on the lending system
employed, in order to compensate lenders for the risk that they are
taking, the amount of interest charged for peer to peer loans may be
higher than traditional prime loans.
No prior relationship between lenders and
lenders may often choose which borrowers
to invest in, if the P2P platform offers that
The loans can be unsecured or secured and
are not normally protected by government
Online investment platform to enable borrowers to attract
lenders and investors to identify and purchase loans that meet
their investment criteria
Development of credit models for loan approvals and pricing
Verifying borrower identity, bank account, employment and
Performing borrower credit checks and filtering out the
Processing payments from borrowers and forwarding those
payments to the lenders who invested in the loan
Servicing loans, providing customer service to borrowers and
attempting to collect payments from borrowers who are
delinquent or in default
Legal compliance and reporting
Finding new lenders and borrowers (marketing)
There were over 30 peer-to-peer-lending platforms in India in
2016.Even with first-mover advantage many sites were not able
to capture market share and grow their user base, arguably
because of the reserved nature of Indian investors or lack of
awareness of this type of debt financing.
“All the P2P loan platforms will be treated as non-banking
financial companies (NBFCs) and will be brought under the ambit
of the banking regulator. “ as on Sept 21,2017.
However, peer-to-peer lending platforms in India are helping a
huge section of borrowers who have previously been rejected or
have failed to qualify for a loan from banks.
Peer to peer lending has helped consumers with no or poor
credit scores get loans in categories such as consumer lending,
small business lending and property lending.
The online P2P lending market in India is at a nascent stage, but has
picked up pace over the past two years. While the overall internet-based
alternative finance industry registered transactions worth more than $57
million between 2013 and 2015, online peer-to-peer or marketplace
lending saw loans with a cumulative value of over $2 million disbursed
during the same period.
The launch of India’s Digital Stack that includes Aadhar , eKYC and
digital payments is paving the way for the country’s shift towards a
cashless economy. Recent government policies and initiatives favor
the fintech sector and have been encouraging innovation in products
through a wide-spread adoption of technology in the financial sector
The Indian P2P lending sector currently has some highly promising
players that will propel growth in the industry on the basis of a strong
back-end system and robust processes.
.The year 2017 is expected to be the year of financial technology, with
alternative lending and investment products like peer-to-peer lending
set to be driving forces for the latest iteration of the fintech revolution in
Futures is a new asset class for investors:
( Eg. Faircent.com has consistently delivered net returns
upwards of 18% per annum to its majority of lenders.)
A significant factor holding the online P2P lending market
back is the lack of regulation in the sector. The absence of
an overarching regulatory framework to establish
guidelines for the sector is one of the major reasons
behind the distinct dearth of VC investments into Indian
P2P lending start-ups.