P2P Lending in India | Blog

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While Digital Lending itself is becoming big, P2P lending is a strong emerging trend. In this blog, I want to analyze if P2P lending will emerge strong in India? If so then in what form or structure? Who are advantaged to gain initial successes?

As per the Reserve Bank of India, Peer to Peer Lending (aka P2P Lending) is a form of crowd-funding used to raise loans which are paid back with interest. Currently, Indian P2P has more than 30 players, and the market size is slated to cross USD 4 Bn to 5 Bn by 2023. The VC activity in the sector is also high with around USD 221 Mn flowing in the last two years. Naturally, RBI issued final guidelines in Oct’17 for P2P Lending in order to better regulated and also make it trustworthy.

Peer lending is not new to Indian culture. The society already has the practice of borrowing funds from friends, colleagues, relatives and other acquaintances. All these are paid back with an interest as agreed. Even in this age with the advent of advanced banking and financial systems, borrowing from kith and kin already exists. However, so far the process is done manually without a platform. For a generation which is not averse to transacting online for Whitegoods, Grocery, Apparels, Banking, Wallets, the shift of borrowing on a portal as an intermediary is not far-fetched. It’s just a question of when and how?

The portal/platform will be just a facilitator providing guidance and compliance making the transactions legal and regulated. This makes the transactions more trustworthy and eventually attract more lenders/borrowers. The benchmarks for these platforms will be integrations with social media, Mature warning systems and digitally comply with regulatory guidelines.

a.    Integrations to Social Media: The connectivity to social media includes connecting to Facebook, WhatsApp and other social chats. These integration help in “Track and Shame the defaulters in his societal circles”.

b.    Mature Warning systems: The biggest drawback in P2P lending versus the formal lending channels, is the barrier to invest and identify the credibility of a person. If platforms can help the lenders assess the risk involved in a transaction both before and after the lending happens, it will be a great benefit.

c.    Digitally Comply with Regulatory guidelines: Complying with Regulatory guidelines involves a lot of paperwork and audit trail. Maintaining this in this digital world is not tough. However, the knowledge, ability to interpret and change as per changing Regulatory guidelines will be the differentiating factors.

As per my reckoning of the current Indian market, the popular Wallets are better advantaged to become successful P2P platforms than others. This is because they already have social integrations embedded and also are already aware and complying with Regulatory guidelines. For them to comply with lending guidelines will be a nudge. Already advantaged with the two baselines, they only need to build the expertise of Risk Warning systems. This will be incremental. Moreover, the Wallets already have a strong user base from which the P2P lenders and borrowers will eventually emerge.

Sources:

1.    https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3164