Indian have always been great at saving. Blame it on Bollywood. The 80s mom would surreptitiously unfold her dupatta or open the jar of sugar to reveal her savings and help her family in the time of financial crisis; putting her suddenly in the limelight as the savior. Or the hard-working father who slogs all his life to provide for his family but still cannot afford the medical care needed for his dying daughter or wife. When you grow up on cinema that melodramatic, its but natural to ensure that there is enough tucked away for a rainy day.

And that’s what most Indians, especially middle-class Indians, have been doing. Putting away their savings in banks deposits and funds. Till about 2016, deposit growth was in a healthy double-digit level falling to 9.9% in FY16’. Banks kept growing by accepting deposits from the general masses and lending out at higher interest rates pocketing the margins. The middle-class was happy because they thought their savings were safe even though the payout just about managed to be at par with inflation. All this changed with the financial crisis of 2016 and banking scams of 2017.

Post-2016 returns from not just provident fund but also savings and fixed deposits started plummeting. At 8%, returns on PPF is now at its lowest since 1980. Similarly, the rate of the NSC has lowered down to 7.8% and of fixed deposits around 6.8%. Saving deposit rates have not fared any better and at most hover around 3.5% mark. Add to this, taxes payable on the interest earned from these deposits and returns fall even further.

Not just the financial sector, the social fabric of the country has also changed over the last decade. As per the last 2011 census, half of India’s population is in the age group of 29-59 years and only 9% above 60 years. 

The Smart Millennial, unlike his predecessor, doesn’t want to just retire with enough to lead a cozy life. He wants to retire early and rich. With no intentions to compromise on luxuries of life, he wants to hang up the boots when still young and with loads of money at his disposal. So, his investment decisions are driven by the need to earn more and not just to beat inflation.

Also, the diminishing returns from traditionally safe investments like real estate and gold have helped Indians realize that past performance cannot guarantee similar results in the future. Returns expected are often driven by risk appetite. The fact that though market-linked investments like stocks and mutual funds have delivered 12% to 14% p.a mainly for investors with long-term horizons, the savvy ones are always on the lookout for newer alternatives. Step in the new kid on the block. P2P Lending allows investors to earn like banks. By directly connecting Lenders and Borrowers on an online platform, P2P lending reduces intermediary margins earlier pocketed by banks and passes it to the end user. This enables Lenders to make higher returns and Borrowers to access Personal Loans at lower interest rates.  

While P2P lending may still be in its nascent stage in India, it’s been a successful global phenomenon for the last decade especially in the US and UK. Recently released data by UK’s P2P Finance Association shows lending from the top 8 UK platforms has touched 8.9 billion pounds at the end of Q1 2017. In India, investors on Faircent.com, India’s largest P2P lending platform are earning returns as high 18% to 25% p. an Interestingly, lender registrations have gone up by 100% in the last year and more than 60% of the registered lenders on the platform are below 35 years. So, what is attracting Indians to P2P lending? Especially the young Indians.

All market-linked investments are accompanied with certain risk whether it is stocks, gold, real estate or mutual funds. P2P Lending is no different but here the risk is predictable and manageable. A lender can spread his investments across verified loans categorized into various risk buckets – from low to very high – and build his portfolio as per his own risk appetite.

Millennials are also far more comfortable with online processes, technological developments and financial processes are done through the internet. P2P’s tech-driven approach and online processes along with seamless access to data that makes decision making more informed is another attraction for tech-empowered consumer base.

This unique combination of higher annual returns, flexibility, technology, and low risk is driving the popularity of P2P lending in India establishing it as Best Investment Options for Salaried Person a lucrative asset class. And with Bollywood moving from melodramatic struggles of the 80’s to road-trips across Europe, the aspiring Indian is embracing wise investments over bad savings like never before.