Peer to Peer Lending – Is India the Next Destination?
Peer to Peer (P2P) Lending in India
Peer to Peer Lending or P2P Lending has been transforming the way people used to manage their financing, both savings as well as borrowings. By using the latest technology and leveraging the power of internet, it has connected people in different corners of country to lend and borrow from each other at rates lower than ever. Both lenders and borrowers have benefitted immensely. Borrowers who used to get raw deal from banks and were left to the mercy of greedy and unscrupulous money lenders can now borrow at attractive interest rates. Financing has now become available to them to fulfill their urgent personal requirements like medical emergency, marriages, education or meet funding gap to purchase land, car or fulfill their dream of buying ‘that’ new phone.
Not only borrowers, but also investors in India do not have access to high return investments. They have to look to the stock market to earn anything above 8%, the fixed deposit rate. And we all know the inherent risks of investing in stock market which are quite complex and returns depend on multiple market driven parameters which are difficult to understand. However, P2P Lending provides a simple, easy to understand and high return product for investors. Though this also has some risks, but can be addressed by a credible P2P platform. Lenders should select platforms which have strong credit evaluation process to ensure good returns (please refer: Peer to Peer Lending – New Investment Avenue for Retail Investors).
Considering the high appeal of P2P Lending among individual lenders and borrowers, it isn’t a surprise that P2P Lending is now China’s third most popular choice of investment for investments less than $77,500 as per iqianjin.com and AdMaster survey. Going by the reports, P2P platforms brokered about $150 billion (~INR 1 lakh crore) worth loans in year 2015 itself! The market has been growing multifold since its humble beginning in year 2010. Not only China, P2P Lending is big in the US, the UK, Germany and many more other countries and has been growing in leaps and bounds. The top two lenders in the US accounted for $18 billion of loans disbursed in 2015. Key question for us – whether India is going to be next to witness such growth? By all means the answer seems to be a loud ‘yes’. Strong response from users of one of the leading P2P Lending portals, i2ifunding, clearly demonstrates this.
As per a borrower, Jaspal Singh, “I will recommend i2ifunding.com to all those who are in need of money. Based on my experience, overall process of borrowing money from i2ifunding.com is absolutely simple and quick. With their fast and easy online processing, I completed my application within minutes and without any headache of physically visiting any branch and filling complex application forms. Way to go i2ifunding.com.”
Similarly, an investor, Avinash Omar has strong recommendations – “Investing on i2ifunding.com is very easy and hassle free. It has intuitive and easy to use online process which anyone can use. Based on suggestion of i2ifunding.com, I have invested into multiple borrowers to diversify my risk and earn higher returns.”
There are multiple other stories which clearly indicate that P2P Lending is going to have increasingly strong presence in India as it is a grossly underserved and under penetrated market. As per the World Bank paper, “The Global Findex Database 2014 – Measuring Financial Inclusion around the World,” three countries – India, China and Indonesia accounted for 38% of the world’s unbanked adults. Of this India accounted for 21%, China 13% and Indonesia 6%. Though Pradhan Mantri Jan-Dhan Yojana has substantially helped in increasing the banked population, it will be some time before banks start comfortably lending to people. Even now, many of us who are banked do not have access to proper and timely credit. Hence, it is likely that India will repeat what China has witnessed in terms of embracing P2P Lending.
It is also worth mentioning that P2P Lending is currently largely unregulated in most of the countries including India. Due to its exponential growth in short time, the regulators did not get enough time to come up with right governance structure. However, in countries such as China, the US, UK etc. initial set of rules are being drafted. In India, the RBI has already taken note and is in process to set up the guidelines.
Though India is just a beginner in P2P Lending, in coming days, this will be one of the main streams of alternative mode of financing for both savings and borrowings.