P2P Lending in India – Expectations in 2018
What 2018 holds for P2P Lending in India
To a certain extent, a country’s economy is defined by the way its people borrow and lend. Before the inception of the banking system, people borrowed money from each other, relatives, landlords or those who had extra cash to spare. Especially in a country like India – which for the longest time has had a large unbanked population. Peer-to-peer, or P2P lending in India, therefore is not a completely novel concept in the country. It existed – just offline.
In the recent past, Indians’ relationship with loans is closely entwined with the traditional banking system. However, in an increasingly global financial landscape, online peer-to-peer lending – championed by portals like i2i Funding, has started to gain popularity among Indian borrowers and lenders, and the digital world.
Is P2P Lending in India supposedly a revolution in the country’s financing sector? Or is it just another walk in a really crowded park filled with more banks? Let us take a look.
The Current situation in India
The current scenario might hold numerous opportunities for P2P lending in India to build a strong foothold the financing sector. The recent demonetisation left banks strangled with loans and a hefty amount of pending applications, which they are unable to process due to the lack of fluidity in the system.
Not everyone is a part of the banking system. Some might not have enough collateral or regular income to even be eligible for a loan. Banks are fiscally conservative institutes that have evolved to avoid risks.
It is the same old process full of red tapes and counter-signatures that leads to delays. You lose track of time before your required money finally arrives. The situation becomes worse for those who are incapable of presenting a credit score that meets the demands of the banks, and hence end up helpless. In a country that has, at least on paper, only 1.5% of its 1 billion population earning over 2.5 lakh rupees annually, such scenarios are more likely to occur.
NBFCs and money lenders charge a large rate of interest on personal loans. This is naturally driving borrowers away from NBFCs and local meney lenders towards P2P Lending portals. People usually refrain from taking out a loan even though they might desperately need it, because of these high interest rates. Hence, the current state of affairs does require a revolution in the way Indians lend and borrow.
If a person in India were to understand P2P lending, the best layman’s explanation that could exist is simply – online lending. Loans through the internet – that’s how it’s best described.
Thanks to the central government’s push with Digital India, the general growth in our economy, more people going online than ever before, expect more exposure to the fact that people can get easy and fast loans, even with limited traditional credentials.
Of course, this doesn’t mean that everyone with a low or non-existent credit score can get a loan via P2P lending. But, as with platforms like i2i Funding that judge both your credit score and social score, before lending money, a person with a low credit score might stand a better chance with P2P lending than with banks. There are social scores looked at as well – involving an analysis of your social media accounts. For example, a person who engages in academic events or philanthropic activities would have a higher social score than a person who parties a lot, or hangs out in restaurants often.
Talking about the general philosophy among people about interest rates and loans, P2P lending can attack the fact that loans cannot be cheap. Interest rate is determined based on multiple factors and not only based on credit score, so everyone gets a chance to get fair interest rate.
For the investors, a surge of easy returns awaits amidst a slow stock market, dreary real estate and declining investment portfolios. The RBI’s regulations on this industry have helped enhance not only people’s confidence, but also in making the process more credible and reliable. There are several portals in the current Indian market.
These P2P lending firms have developed a competitive spirit among themselves. They’re coming up with innovative models to encourage more people to turn to a P2P lending platform as an investment option. This is why P2P Lending in India seems to have a better fortune than any other industry as of now.
What could 2018 bring for P2P Lending in India?
India’s startup culture has also seen growth recently. While there were minimal barriers to entry when it comes to starting a P2P lending platforms, this has changed somewhat with the RBI’s guidelines. With RBI’s regulations safeguarding borrowers, investors and platform operators, P2P lending portals now require a Net Owned fund of Rs. 2 Crs , and need to register with the regulator as well.
What this will result in, is reliable, vibrant portals that cater to both lenders and borrowers.
The online financing sector in India experienced a surge between 2013 and 2015. With the online financing sector transaction more than $50 million, around $2 million peer-to-peer lending loans were distributed during that period. This number increased to $4.5 million for the year 2016 alone. With this current high, P2P lending in India is projected an estimated worth of $4-5 billion by the end of 2023.
The growth of SMEs and MSMEs is synchronous with the growth of P2P Lending industry. P2P Lending portals like i2i Funding are able to provide easy and fast loans to the small scale industries. From 1 just one portal in 2012 to over 30 by the mid of 2017, the growth has indeed been rapid.
Small and medium sized enterprises are still to see the same output as before November 2016. And who doesn’t want easy, less tiring and fast loans? P2P lending could become the face of the financing sector!
One more important aspect that helps the thought of 2018 being the year for P2P Lending in India, is the move towards a cashless economy. Helping the common man go online would not only increase the reach of this industry, but would also back organisations that could run on the internet. Therefore, the stage is set for P2P lending to strengthen its roots in India in 2018!
Conclusively, the year 2018 looks bright for P2P Lending in India with expectedly higher number of incoming investments and higher number of borrowers than in previous years.