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Online Peer-To-Peer Lending

Most SMEs require capital infusion, particularly during the earliest phases of their growth. However, due to various reasons like low-credit scores, entrepreneurs are often unable to access the funds they need to set up or grow their business from institutional lenders.

The digitisation of the global business landscape and an advanced technological infrastructure has transformed nearly every industry and banking has been no exception. Facilitating simple, fast, and tech-enabled banking services, the emergence of fintech is forcing banks to rethink old business models and delivery mechanisms to adopt a more technology-driven and consumer-centric approach to retail banking. 

Leading this ‘uberisation’ of financial services is the online P2P (peer-to-peer) lending sector, which is driving disruption in the institutional lending space through its simplified, tech-enabled approach. What this also means is that online P2P lending will play a significant role in driving the Indian economy.

Most SMEs require capital infusion, particularly during the earliest phases of their growth. However, due to various reasons like low-credit scores, entrepreneurs are often unable to access the funds they need to set up or grow their business from institutional lenders. This is where online P2P lending platforms step in. By seamlessly connecting borrowers in need of funds directly with lenders over a digital medium, these platforms are transforming the otherwise complex process of financial lending.low-credit scores, entrepreneurs are often unable to access the funds they need to set up or grow their business from institutional lenders. This is where online P2P lending platforms step in. By seamlessly connecting borrowers in need of funds directly with lenders over a digital medium, these platforms are transforming the otherwise complex process of financial lending.

The adoption of technology means that loan approvals and disbursals can be facilitated in as little as 24 hours from the request origination, whilst digitised operations and processes allow for minimisation of overhead costs. This translates to greater benefits for all stakeholders; while borrowers pay lower interest rates and processing fees, lenders earn higher margins and returns on their investments. The facilitation of cost-effective and quick credit allows MSME businesses to scale up their operations, which in turn lead to greater job creation and drives the overall economic growth.minimisation of overhead costs. This translates to greater benefits for all stakeholders; while borrowers pay lower interest rates and processing fees, lenders earn higher margins and returns on their investments. The facilitation of cost-effective and quick credit allows MSME businesses to scale up their operations, which in turn lead to greater job creation and drives the overall economic growth.

In addition to making acquisition of business loans easier, online P2P lending is helping the government realise its goal of financial inclusion for all Indians by making consumer lending less complicated for borrowers. Through advanced analytic tools that collate information from various sources to assess the creditworthiness of borrowers, P2P lending platforms enable quick loan approvals and access to capital.

Tech-enabled financial lending services are also emerging as a highly-lucrative asset class for Indian investors, offering an alternative and profitable investment option. Unlike mutual funds which offer an average rate of return of 9.5 per cent, P2P lending allows investors to earn higher gross returns. For example, the average returns earned by investors on Faircent.com range between 18 per cent and 22 per cent after adjusting for defaults in the last two and a half years.

Online P2P lending platforms also ensure liquidity for an investor since there is neither a full-fledged long-term nor short-term lock-in period. Moreover, returns on the loan start from the following month itself in the form of EMIs. Lenders can also reinvest their returns in traditional asset classes or revolve them within the peer-to-peer loan market to multiply and compound the returns quicker.  

Peer-to-peer lending will have an indelible impact on the Indian financial market. The nascent Indian P2P lending market is expected to grow up to $5+ billion over the next four to five years. The possibilities are endless. Industry experts believe that a well-defined regulatory framework with clear guidelines would help the sector grow better in future.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.




Rajat Gandhi

A marketer, strategist, and brand builder with over 20 years of experience, Rajat Gandhi is the Founder & CEO of Faircent, India’s largest peer-to-peer lending platform. As one of the earliest Internet professionals in India, Rajat has leveraged his extensive expertise in online and digital realms to pioneer the concept of online peer-to-peer lending in India and establish Faircent as the largest P2P lending platform in the country.

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