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By Rishab Maloo
Pursuing B.Com (Hons) at St.Xavier’s College,
Kolkata
What is 'Peer-To-Peer Lending (P2P)'
Peer-to-peer lending (P2P) is a platform of debt financing that enables
individuals t...
Procedure
Intermediated by the platform in the following way:
• The borrowers raise a requisition on the platform for fund...
Crowdfunding
• Crowdfunding is a great option for start-ups and early
stage businesses. One needs to “pitch” the idea or b...
Crowdfunding and peer-to-peer lending
At an initial stage when the idea is taking shape of a business model
and funding is...
Revenue model
How does the platform earn?
The platform earns by way of:
• i. transaction fees at the time of origination o...
Risks factors critical to any P2P
platform
Some of the risks factors critical to any P2P platform are as below:
• No peers...
P2P Lending India: Regulatory complexity and
lack of clarity
Regulatory complexity and lack of clarity on P2P model has ac...
Data Analysis & Market Growth
. Between 2014 and 2015 the value of global P2P
lending was expected to rise to a value seve...
Peer to Peer lending
Peer to Peer lending
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Peer to Peer lending

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A short PPT on what is Peer to Peer lending and how does it works

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Peer to Peer lending

  1. 1. By Rishab Maloo Pursuing B.Com (Hons) at St.Xavier’s College, Kolkata
  2. 2. What is 'Peer-To-Peer Lending (P2P)' Peer-to-peer lending (P2P) is a platform 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 scenarios. On these social lending networks, borrowers benefit by securing loans at a lower interest rates compared to banks. On most of these sites, borrowers’ personal information is also not disclosed. Lenders can only see the credit profile of the borrower. The credit profile can include things such as home ownership, monthly/yearly income, total credit lines, credit balance, business details, debt to income ratio etc Lenders also benefit from these sites as they get a good return on their investment which increases with the risk associated with the loan. A good strategy is to fund multiple high risk loans with small amounts thus diversifying the associated risk
  3. 3. Procedure Intermediated by the platform in the following way: • The borrowers raise a requisition on the platform for funding requirement. • Platform then evaluates the credentials of the borrower and assigns a credit score, grades the borrower for determining the interest rates chargeable to the borrower. • Once the borrower’s application is approved, the application is made open for the lenders to express interest in lending to the borrower. • Once lenders’ commitment is received against the loan amount requested by the borrower, platform approaches the bank empanelled with the platform to disburse the amount to the borrower. • Thereafter, platform acquires the loan from the originating bank from the proceeds received from the lenders. • The lenders are issued tradable notes/ certificates representing the exposure of the lender against the borrower.
  4. 4. Crowdfunding • Crowdfunding is a great option for start-ups and early stage businesses. One needs to “pitch” the idea or business to potential investors, and if interested, they will contribute a sum to the proposed venture. The return can be in the form of interest or through equity. • Crowdfunding in its earliest form focussed on helping entrepreneurial and pushing them in the market through required funding. Though the project could be risky, if successful can provide huge return. It is early stage funding • Crowdfunding platforms will typically want a business with a business plan and financial forecasts from you when you make your application, so it’s important you get these in order.
  5. 5. Crowdfunding and peer-to-peer lending At an initial stage when the idea is taking shape of a business model and funding is required, then go for crowd funding. But, if the business is well established and looking for a business loan, then it is better suited to one of the peer-to-peer lending platforms. For crowdfunders, returns are generally provided through giving a share in the business or equity. Whereas, peer to peer lenders are paid interest just like any other debt. Peer-to-peer Lending Crowd Funding
  6. 6. Revenue model How does the platform earn? The platform earns by way of: • i. transaction fees at the time of origination of loans; • ii. earns servicing fees for servicing the loans on an on-going basis; and • iii. earns management fees for managing the borrower accounts. • The transaction fees is payable by the bank to the platform. The servicing fees and management fees is paid by the lenders and the borrowers respectively on the platform. The transaction fee ranges from 1% to 6% of the initial principal amount of a loan. The servicing fee compensates for the costs that the company incurs in servicing the related loan, including managing payments from borrowers, payments to investors and maintaining investor’s account portfolios and may be around 1% of the amount received from the borrowers
  7. 7. Risks factors critical to any P2P platform Some of the risks factors critical to any P2P platform are as below: • No peers or history available to rely on. Considering the fact that P2P is an innovation and by product of technological advancements, there are no precedents to learn from or rely upon for doing business. Lending Club and the peers are setting up business models to be emulated by the subsequent entrants in the market. • The larger the number of borrowers and lenders on platform, the larger is the success of the platform. Hence, the success of the platform is dependent on number of borrowers and lenders using the platform. • For platforms following the Lending Club model, empanelment with banks and appropriate documentation will be a constant challenge and risk for the platform. • Data privacy is of utmost significance. The information provided by the borrowers and the lenders needs to be well protected by the platform. • Simplicity of the product offering and regular functioning of the platform are also risks that the platform needs to tackle.
  8. 8. P2P Lending India: Regulatory complexity and lack of clarity Regulatory complexity and lack of clarity on P2P model has acted as a major deterrent in India when it is growing fast worldwide While the entire world is enjoying a boom in peer-to-peer (P2P) funding, in India this type P2P lending is still not prevalent and has no recognition at all. Even more, there are no regulations governing P2P lending. While the common laws of the country are largely based on the UK laws and are largely facilitating and broad based in nature, the regulatory complexity and non-clarity on P2P model has acted as a major deterrent in venturing into the region. There is ambiguity on whether P2P would be seen as crowd funding model or will be seen as a collective investment scheme. SEBI has a draft on crowd funding but there is still a long way to go before the same is finalised and implemented. Lack of understanding on the regulatory side is one of the primary causes that P2P has not taken off in India.
  9. 9. Data Analysis & Market Growth . Between 2014 and 2015 the value of global P2P lending was expected to rise to a value seven times what it was in 2014 – from 9 billion to 64 billion U.S. dollars. By 2050 the value is expected to be close to one trillion U.S. Dollars. 1m loans between them and are generating more at the rate of well over $10 billion a year.

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