A presentation on P2P lending

1. By- Ameet Roy

2. The contents of the presentation are intended solely for the use of
the client to whom the same is marked by us.
No circulation, publication, or unauthorised use of the
presentation in any form is allowed, except with our prior written
permission
No part of this presentation is intended to be professional advice,
or solicitation of professional assignment.
2
Disclaimer

3. OVERVIEW OF CROWD FUNDING
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Crowd Funding & P2P Lending

4. WHAT IS CROWD FUNDING?
1. Accumulating funds for business/ ideas
through multiple avenues that involves
networking in any possible way.
2. It is the process by which a group (the
general public) collectively provides money
for artists, researchers, businesses and
more.
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Crowd Funding & P2P Lending

5. EMERGENCE OF CROWD FUNDING
Crowd funding as a concept pre-dates
the internet,
The earliest reference of crowd
funding can be traced back to time
during the construction of one of the
world’s most famous landmarks –
“The Statue of Liberty”, which was
partially funded by the people of
America when the committee set up
for arranging funds for the Statue
failed. It was the people of America
who funded the construction of the
Statue of Liberty.
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Crowd Funding & P2P Lending

6. ADVANTAGES OF CROWD FUNDING
It provides access to capital.
Crowd funding is a great alternative way to fund a venture, and it can be done without
giving up equity or accumulating debt
It hedges risk.
Launching a crowd funding campaign hedges the risks associated with start up ventures
and serves as a valuable learning experience.
It serves as a marketing tool
An active crowd funding campaign is a good way to introduce a venture’s overall
mission and vision to the market
It gives proof of concept.
A good way to gain some respect and credibility is be able to show the market that the
proposed venture had a successful crowd funding campaign.
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Crowd Funding & P2P Lending

7. ADVANTAGES OF CROWD FUNDING
It allows crowdsourcing of brainstorming.
By having a crowd funding campaign, the entrepreneur has the ability to engage the crowd
and receive comments, feedback, and ideas for his proposed enterprise.
It introduces prospective loyal customers.
 People who view the entrepreneur’s campaign and decide to contribute are ones that believe in the
success of the company in the long run.
It’s easier than traditional applications.
Applying for a loan or pursuing other capital investments are very cumbersome and
painful, but with crowd funding the entrepreneur will have the essential start-up capital
much easily.
It provides the opportunity of pre-selling.
Launching a crowd funding campaign gives an entrepreneur the ability to pre-sell a
product or concept that they haven’t yet taken to market.
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Crowd Funding & P2P Lending

8. Risk of fraud
Funds raised may not be used for the purpose as disclosed on the platform
Single transaction
Crowd funding is mostly a single transaction rather than continuous like other
forms of financing
Theft of idea
One’s business idea may picked-up and capitalized by others
Limited follow-up mechanism
No mechanism to follow-up the performance of the borrower
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ISSUES RELATED OF CROWD FUNDING
Crowd Funding & P2P Lending

9. TYPES OF CROWD FUNDING
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Crowd Funding & P2P Lending

10. 10
Typesofcrowdfunding
DONATION
BASED
REWARD BASED
PRE-SALES
BASED
LENDING
BASED (P2P)
INVESTMENT
BASED
Crowd Funding & P2P Lending

11. CROWD FUNDING WORLDWIDE
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Crowd Funding & P2P Lending

12. 12
Source: Crowd Funding Industry Report, crowdsourcing.org

13. LENDING BASED (P2P) - MOST POPULAR FORM OF
CROWD FUNDING
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Crowd Funding & P2P Lending
Peer to Peer lending is:-
 Practice of lending money to unrelated individuals, or "peers“;
 Without going through banks or other traditional financial institutions;
 Lending takes place online on peer-to-peer lending companies' websites;
 Various different lending platforms and credit checking tools are used;
 Many also the abbreviation "P2P" when discussing the peer-to-peer
lending generally;
 Also known as crowd lending.

14. 14
FEATURES OF P2P LENDING
• Conducted for profit;
• Intermediation by a P2P lending
company;
• Transactions takes place on-line;
• Lenders uses own discretion to
lend;
• Unsecured and are not protected by
government insurance;
• Loans can be sold to other lenders,
like securities.
• No pooling of funds
• No entry in books for client funds
• Multiple lenders to one borrower
and vice versa
Crowd Funding & P2P Lending

15. 15
ADVANTAGES OF P2P LENDING (FOR BORROWERS)
• Easy Application
 Application can be made on-line by putting in a few pieces of personal information.
• Speed of Funding
 Loans can be raised in matter of weeks, whereas the banks and other institutions takes over a
months time to sanction a loan.
• Funding for all kinds of loans
 P2P loans can be raised for any amount, even amount which are small/ large enough for banks to
reject them.
Crowd Funding & P2P Lending

16. 16
ADVANTAGES OF P2P LENDING (FOR LENDERS)
• Spreading Risk
 A single P2P loan may be funded by a number of lenders, leading to distribution of risk among
the borrowers
• Higher Earnings
 The lender uses his/her own discretion to finance a loan request, so he/she decides on the
interest component of the loan
• Choice of borrowers
 Lenders have the full knowledge of the parties to which his/her fund goes, unlike banks where
the bank lend out the funds and the individual depositors have no knowledge where there funds
are invested by the bank.
• Lower rate of interest
 Interest rates of P2P loans tend to equal or lower than bank and other traditional financing
institutions.
Crowd Funding & P2P Lending

17. 17
Investor Investor Investor Investor Investor Investor
Borrower Borrower Borrower Borrower Borrower Borrower
Banks/ Financial
Institutions
Capital adequacy
Reserve ratios
Asset provisioning
Overhead
Cost
Profit
Investing
Lending
Crowd Funding & P2P Lending

18. 18
Crowd Funding & P2P Lending
Lender Lender Lender Lender Lender Lender
Borrower Borrower Borrower Borrower Borrower Borrower
P2P Platform
Financial Intermediation
Direct lending
Direct borrowing
No Capital
adequacy
requirements
No Reserve ratios
requirements
No Asset
provisioning
Minimal Overhead
Minimal Cost
Fixed
Intermediation
Charges

19. 19
FORMS OF P2P BUSINESS
Crowd Funding & P2P Lending

20. 20
TypesofP2PBusiness
Client Segregated
Model
Notary Model
Crowd Funding & P2P Lending

21. 21
CLIENT SEGREGATED MODEL
Client Account
Borrower Lender
P2P Lending Company
Underwriting
servicing
Investor Sub-Account
2. Identification
3.LoanPayout
4.LoanPayout
6. Loan Repayment
7. Loan Repayment
Crowd Funding & P2P Lending

22. 22
NOTARY MODEL
Lender
P2P Lending Company
Underwriting
servicing
Commercial
Bank
Borrower
3. Origination of Loan
5. Purchase of loan
Crowd Funding & P2P Lending

23. ACTIVITIES CARRIED OUT BY THE P2P LENDING
PLATFORMS
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Crowd Funding & P2P Lending
Activities performed by the platform
Borrower info validation
Data Gathering
Credit Scoring
Loan Funding, Investing, Servicing
Regulatory Compliances and Fraud
Detection

24. 24
0
50000
100000
150000
200000
250000
36 months 60 months
TENURE OF LOANS
Crowd Funding & P2P Lending
A case study on Lending Club, worlds largest P2P platform

25. 25
Debt
Consolidation
Credit Card
Refinancing
Auto Loans
Business
Loan
Home Loan
Home
Improvemrnt
Green Loan
1754786 69064 2340 2239 1022 16992 147
NO OF LOANS TAKEN FOR DIFFERENT PURPOSES
Crowd Funding & P2P Lending
Purpose of loans
Debt Consolidation Credit Card Refinancing Auto Loans Business Loans Home Loans Home improvement Loans Green Loans
A case study on Lending Club, worlds largest P2P platform

26. P2P LENDING IN EUROPE
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Crowd Funding & P2P Lending

27. P2P LENDING SCENARIO IN EUROPE
27
European Commission is set to unleash the power of crowd funding in
Europe
The European Crowd funding Network helps advise and influence the
European Commission in policy building for the sector
Countries most active in P2P Lending:
United Kingdom
France
Spain
Crowd Funding & P2P Lending

28. P2P PLATFORMS IN EUROPE
Zopa – UK
CrowdCube – UK
Funding Circle – UK
Our Crowd – Israel
KissKissBankBank – France
Goteo – Spain
Seeders – UK
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Derev – Italy
Booomerang – Denmark
Symbid – Netherlands
MyMicroinvest – Belgium
Companisto – Germany
Invesdor – France
Crowd Funding & P2P Lending

29. P2P LENDING IN AMERICA
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Crowd Funding & P2P Lending

30. P2P LENDING SCENARIO IN AMERICA
In America, US crowd funding industry sums up to 80-90% of the continent’s crowd
funding
Other countries allowing crowd funding in America are:
Canada
Mexico
Brazil
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Crowd Funding & P2P Lending

31. P2P MARKETS OF AMERICA
The US crowd funding market grew by
167% in the year 2014 as compared to
2013
Funds raised through P2P platforms in
the year 2014 was over USD 16 billion
Title III of the JOBS Act deals with Crowd
Sourced equity Funding (CSEF) in
America
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Crowd Funding & P2P Lending

32. 32
CONSUMER CREDIT ORGINATION LOAN TRUST 2015 (CCOLT),
CARRIED OUT WORLDS FIRST RATED SECURITISATION OF P2P LOANS
Crowd Funding & P2P Lending
On January, 2015
USD 344.85 million, loans securitsed
Securitisation of unsecured consumer installment loans
Originated and serviced through Prosper Funding LLC
Black Rock Financial Management Inc. floated the SPV – CCOLT
Moody’s Investor Service rated the transaction

33. RATINGS OF WORLDS FIRST P2P LOAN SECURITISATION
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Crowd Funding & P2P Lending
Clan Ratting Loan Amount
A (P) Baa3 (sf) USD 281.32 millions
B (P) ba3 (sf) USD 45.38 millions
C NR USD 18.15 millions
Baa3 – Moderate Credit Risk
Ba3 - Not considered to be investment-grade bonds
NR – No Rating

34. P2P LENDING PLATFORMS IN AMERICA
LendingClub.com - US
Kickstarter – US
Prosper – US
GoFundMe – US
LendingLoop – Canada
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Crowd Funding & P2P Lending

35. 35
Crowd Funding & P2P Lending
0
200
400
600
800
1000
1200
UK
2013 2014 2015 2016
in USD millions
0
50
100
150
200
Isreal
2013 2014 2015 2016
in USD millions
0
50
100
150
200
250
Australia
2013 2014 2015 2016
in USD millions
0
200
400
600
800
1000
1200
Canada
2013 2014 2015 2016
in USD millions
0
500
1000
1500
France
2013 2014 2015 2016
in USD millions
0
10000
20000
30000
40000
USA
2013 2014 2015 2016
in USD millions
P2P LENDING VOLUMES WORLDWIDE

36. 36
Crowd Funding & P2P Lending
P2P LENDING VOLUMES WORLDWIDE
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014 2015
In USD billions
US
UK
China
Australia

37. 37
Crowd Funding & P2P Lending
EXPECTED P2P LENDING VOLUMES WORLDWIDE
0
20
40
60
80
100
120
140
160
2016 2017 2018 2019 2020
In USD billions
US
UK
China
Australia

38. 38
Crowd Funding & P2P Lending
DEMOGRAPHY OF P2P LENDING
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Age 18-34 Age 34-55 Age 55+
Used
Aware but not used
Unaware

39. CROWD FUNDING IN INDIA
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Crowd Funding & P2P Lending

40. CROWD FUNDING IN INDIA
Crowd funding is not a new
phenomenon for India, Temple and
mosques are being built by
accumulating funds from the public
from the ancient era
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Crowd Funding & P2P Lending

41. CROWD FUNDING IN INDIA
An age old form of Crowd funding
practiced in INDIA
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Crowd Funding & P2P Lending

42. HURDLES OF MODERN CROWD FUNDING FORMS
IN INDIA
• People’s mindset
• Lack of knowledge
• Limited reach of technology
• Disparity of Income distribution
• Governmental regulations
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Crowd Funding & P2P Lending

43. LEGALITY OF CROWD FUNDING IN INDIA
Crowd funding is devoid of any regulations or
regulatory authority in the country.
In the absence of any regulations there are
many dilemmas regarding crowd funding in
India
 Registration requirements for the platform
 Will cash collected from clients be regarded
as deposits under the RBI’s “Acceptance of
public deposit” directions?
 Will the loans funded by multiple lenders be
regarded as collective investment scheme?
 Will lenders have recourse on the platform
in the event of default by the borrower?
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Crowd Funding & P2P Lending

44. REGULATIONS FOR CROWD FUNDING IN INDIA
• No specific regulation for crowdfunding.
• The only piece of document in relation to
Crowd funding issued by the authorized
source is the consulting paper by
Securities and Exchange Board of India,
which was issued in the year 2014.
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Crowd Funding & P2P Lending

45. 45
REGULATIONS TO BE KEPT IN MIND BY THE P2P PLATFORM
Crowd Funding & P2P Lending
Regulations Compliance Requirement
Deposit Regulations x
Section 45 (S) of Reserve Bank of India x
Collective Investment Scheme of SEBI x
Alternative Investment Funds Scheme of SEBI x
Portfolio Management Scheme Regulations of SEBI x
The Prize Chits and Money Circulation Schemes (Banning) Act, 1978 x
Chit Fund Regulations x
State wise money lending laws 

46. SEBI CONSULTATION PAPER ON CROWD FUNDING
• Overview of crowd funding scenario world
wide.
• Covers prevalent regulations governing
fund raising for start ups and SMEs in India.
• Points out the judicial and regulatory
challenges for crowd funding in India.
• Proposes crowd funding as an additional
channel for an early stage of funding via
access to the country’s capital markets
• Asks for public comments and suggestion
on crowd funding
46
Crowd Funding & P2P Lending

47. 47
Crowd Funding & P2P Lending
P2P VOLUME IN INDIA
0
100
200
300
400
500
600
700
800
900
2013 2014
in USD thousands

48. 48
Crowd Funding & P2P Lending
P2P MODEL IN INDIA
Client Account
Borrower Lender
P2P Lending Company
Underwriting
servicing
Investor Sub-Account
2. Identification
3.LoanPayout
4.LoanPayout
6. Loan Repayment
7. Loan Repayment

49. FUTURE OF P2P LENDING IN INDIA
 Crowd funding will be lucrative in near
future only if S.E.B.I comes up with a
framework which is
Broad
Extensive
Flexible
 with regulations coming into place it would
become the highly sought out platform for
raising money.
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Crowd Funding & P2P Lending

50. CROWD FUNDING PLATFORMS IN INDIA
• Fair Cent (www.faircent.com)
• Lend Box (www.Lend Box.in)
• I-lend (www.i-lend.in)
• Rupiya Exchange (www.rupaiyaexchange.com)
• Loan Meet (www.loanmeet.com)
• Lenden Club (www.lendenclub.com)
• We Care India (www.wecareindia.org)
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Crowd Funding & P2P Lending

51. THANK YOU
Kolkata:
1006-1009, Krishna Building,
224, AJC Bose Road, Kolkata – 700017
Ph: 033 2281 1276/3742/7715
Mumbai:
601-C, Neelkanth, 98 Marine Drive
Mumbai – 400002
Ph: 022-43472206
Delhi:
B-49, Panchseel Enclave,
New Delhi – 110017
Ph: 011 41315340
51
VINOD KOTHARI CONSULTANTS PVT. LTD.