Peer to Peer lending (P2P Lending) is expected to take the Indian financial market by storm. As per transparency Market Research, the P2P lending space is growing at a CAGR of 48% and is expected to reach $800+ billion in 2024. Similar potential lies within the Indian market which is expected to attain a size of $5+ billion in the next 4-5 years. The potential is immense.

Peer to Peer lending platforms connect individuals looking to borrow with those willing to lend. Previously the domain of money-lenders, banks and NBFCs – this age-old business model has now been taken online by P2P lending platforms. Using tech-enabled processes they have managed to reduce intermediary cost thereby helping borrowers get Low Interest Rate Loans and lenders make higher returns.

As a result, it is finding great traction with Indian consumers. Disbursal (YTD) through Faircent increased from just about 2 crores last year to 15+ crores this year. Boost is further expected with RBI regulations expected soon. As long as P2P Lending platforms are able to maintain lending standards, innovate continuously and upgrade technology regularly, this new kid on the block is here to stay.

So, is investing in P2P lending for everyone? Simply put No. It is for those who are willing to understand and follow certain benchmarks and guidelines which enable them to make the most of this disruptive financial innovation.

Access

First, the platforms themselves have restrictions. At Faircent, lenders should have minimum income of 10 lacs and not more than 30% of gross income should be earned from interests. They should have invested in stocks and other market linked investments through DEMAT or trading account. Click here to know who can become a lender on Faircent. 

Approach

P2P lending is for people with an appetite for risk. It’s a market-linked investment and hence it’s important that the investor evaluates their returns across the entire cycle. Defaults should be expected and factored in. Just like a stock market, the lender should focus on building a diverse portfolio to maximize returns.

Choosing the right Platform

It’s important to be able to select the right platform to lend through. Some key factors to consider are

A: Investment Standards maintained by the platform. This refers to the volume and value of borrowers. Value of borrowers can be interpreted by studying the delinquency ratio. Faircent is India’s largest P2P lending platform with more than 80,000 registered borrowers and 7,000 registered lenders. It is also the only platform to transparently display all data including delinquency ratio across yield-categories updated real-time.

B: Processes implemented by the platform. This includes data analytics, credit evaluation technique used, platform interface, efficacy and efficiency of money transactions, follow-up and recovery methods. As the largest P2P lending platform in India, we are responsible for many firsts in the P2P lending industry. We were the first platform to tie-up with Baxi to provide collateral-based Personal Loans to its drivers. We were the first to introduce legally-binding virtual signature of loan agreements using Government of India’s digital stack. Recently, we introduced Escrow account under the trusteeship of IDBI and are soon launching Automated-Investment. All these processes are aimed at increasing lender and borrower confidence and convenience.

C: Transparency: A platform that presents all facts up front, puts out the data for the public and helps the lenders make informed decision, is the platform to trust. All Faircent analytics is available on the website and can be accessed here. 

Faircent regularly releases a detailed research and analysis report that analyzes the plethora of data available to present borrower and lender trends.

Returns and Liquidity

A good lender will first understand the impact of investment through P2P lending on his liquidity and returns and make the most of it. P2P lending gives the advantage that returns – both principal and interest – start accruing in the bank account from the next month onwards. This can be re-invested to increase returns. Risk is managed and higher returns can be earned by investing small amounts across many borrowers.

In Conclusion

Thus, P2P lending is for the smart investor capable of building diversified portfolio. A good platform will assist in this task by providing necessary tools and processes. For example, Automated-Investment by Faircent will help lenders build a robust portfolio of borrowers that meet their investment criteria. P2P lending is a boom for prudent, rational and wise investors. So don’t keep waiting. Jump on to the bandwagon by Signing Up Now!