P2P Lending – A Game Changer in Lending Business?

 

Nowadays Peer-to-peer lending is extremely popular, enabling lending or borrowing between individuals and businesses. Here, the lending platforms facilitate this process by bringing the two counterparties together and supervising the operation as well. 

Many SMEs find it difficult to obtain loans through traditional means such as banks and other traditional financial institutions. P2P lending has proven to be a lifeline for these businesses. However, this comes at a prohibitive cost as some lending platforms charge a significant amount of fees. 

Cryptocurrency-based P2P lending platforms also charge excessive fees, just like traditional peer-to-peer lending platforms. However, with the advent of cryptocurrency-based peer-to-peer lending platforms, the lending process has become more efficient. 

P2P lending platforms that enable cryptocurrency lending and borrowing have led to a more productive and effortless way to deal with lenders and borrowers. Cryptocurrency-based peer-to-peer lending has opened the door to new forms of collateralization, enabling the collateralization of digital assets. Cryptocurrency is an ideal format for peer-to-peer cash transactions and hence it was time to implement it for peer-to-peer lending.

What is Peer to Peer Lending?

Peer-to-Peer lending is also termed “Social lending” or “crowdlending”. It means Individuals can acquire loans directly from other individuals through peer-to-peer (P2P) lending, excluding the financial institution as an intermediary. Websites that offer peer-to-peer lending have become popular as an alternative method of financing. 

Although it’s only been around since 2005, it already has a slew of competitors, including Prosper, LendingClub, Upstart, and StreetShares.

Point of contingency

The following characteristics are discussed to define a Peer-to-Peer lending Platform:

• Peer-to-peer lending is a complete online portal that connects borrowers and lenders.
• There is no requirement to develop a relationship between the lender and the borrower before the lending and borrowing process on this platform.
• One of the most appealing aspects of peer-to-peer lending is the absence of any financial institutions or intermediaries between the borrower and the lender throughout the process.
• Furthermore, the borrower and lender each have their own set of terms and conditions, giving them the freedom to choose between borrowing and investing.

Types of Peer-to-Peer lending

P2P loans are typically limited to $40,000, though some sites may go higher. P2P loans are classified into three types.

• Personal lending

Borrowers use loans to pay for medical expenses, car purchases, and home improvements. They can also help with debt consolidation. These loans are frequently easier to obtain through social lending groups because they are not subject to the same restrictions as those imposed by financial institutions.

• Businesses lending

These loans can be used to cover startup expenses such as marketing, facility maintenance and repair, and new-product launch costs. Because borrowers can present their loan proposals to multiple lenders, their chances of approval increase when they use social lending groups for business loans.

• Students/Educational Purposes lending

These are typically lump-sum loans that allow the borrower to divide the funds for school-related expenses however they see fit. Although it is best to exhaust all federal student aid options before considering alternative loans, social lending organizations can provide competitive student loan rates.

How does peer-to-peer lending work?

The process of peer-to-peer lending is quite simple. All transactions take place on a dedicated internet platform. The general P2P lending method is described in the steps below:

• A potential borrower fills out an online application on the peer-to-peer lending platform to be considered for a loan.
• The software evaluates the application and calculates the applicant’s risk and credit score. Following that, the suitable interest rate is assigned to the application.
• When the application is authorized, the investor presents the applicant with the available options based on his credit rating and allocated interest rates.
• The candidate can weigh the alternatives and pick one.
• The applicant is responsible for paying interest and repaying the principal on a regular basis (typically monthly).

What are P2P Lending Platforms?

The Peer-to-Peer lending platforms coordinate among the borrower and lenders and facilitate them to satisfaction with their respective desire. P2P lending platforms act as a marketplace for lenders and borrowers, they act as matchmakers that allow individual lenders and borrowers to transact on short to medium-term loans. 

So, if you are an individual with investible money, you could lend it without delay to a borrower through an online platform and earn interest on it.

Most P2P lenders use Alternate Credit Decisioning strategies to underwrite loans. This approach means that they do not completely rely upon the credit score and traditional risk assessment strategies to disburse loans. These new-age finance organizations may also consider multiple other data points which include social profile, e-commerce/utility bill expenditure behavior, employment credentials, etc. to evaluate the creditworthiness of the borrower.

P2P Lending Platforms

Lendbox

Lendbox is a registered peer-to-peer lending platform that has transformed the way in which trustworthy borrowers and smart investors/lenders connect in India. Borrowers can obtain instant loans with interest rates ranging from 16% to 28%. The loan amount is limited to Rs.5 lakh. The loan repayment period can range from 6 to 36 months.

Fee for RegistrationRs.100

I2ifunding

2i is an online Peer to Peer Lending (P2P Lending) marketplace that connects verified borrowers seeking unsecured loans with investors seeking a higher risk-adjusted return. To ensure a smooth operation, the entire loan application process is completed online, from credit evaluation to investment, fund transfer, and repayment. Borrowers can obtain instant loans with interest rates starting at 12%. The loan amount can range up to Rs. 10 lakhs. The loan repayment period can range from 3 to 36 months.

Fee for Listing/RegistrationRs.100 plus 18% GST = Rs.118

Faircent

Faircent is a Non-Banking Financial Corporation (NBFC) that provides personal loans at low-interest rates ranging from 12% to 28%.and repayment terms ranging from 6 months to 3 years. Faircent is a unique peer-to-peer lending platform that allows users to borrow as well as lend to meet their needs. Faircent lenders are high net worth individuals who are successful in their respective professions or NBFCs that can provide you with a loan.

Fee for listing/registrationRs.500

OMLP2P

OML Smart Financing, also known as OMLP2P, is one of India’s leading peer-to-peer lending platforms. The Reserve Bank of India has registered OMLP2P. (RBI). You can get a personal loan ranging from Rs.25,000 to Rs.10 lakh. Although, the funds will only be lent in multiples of Rs.5,000. The loan repayment period can be as short as three months or as 36 months. Personal loan interest rates start at 9.49 % and can reach 36 % per annum. 

Listing/Registration Fee Rs.100

I-lend

i-LEND is an online lending marketplace that connects that person who needs funds and looking for the person who wants to lend. It is registered with the RBI as an NBFC -P2P. Borrowers can obtain instant loans at interest rates ranging from 15% onward. The loan amount can range between Rs25,000 and Rs5 lakh. The loan repayment period can range from 6 to 36 months.

LenDenClub

LenDenClub is a peer-to-peer lending company that offers its customers hassle-free loans at reasonable interest rates.

LenDenClub offers personal loans with interest rates ranging from 6.5 percent to 20.95 percent and repayment terms ranging from 3 months to 24 months. If you do not have any default write-ups, you can apply for a personal loan of between Rs.5,000 and Rs.10,000.

Fee for listing/registrationRs.750

P2P Crypto Lending 

The primary goal of the P2P crypto lending platform is to connect lenders and borrowers on a single platform to facilitate transactions between them. To promote safe and secure transactions, the platform should handle multi-layer security, KYC, and AML verification for both the lender and the borrower.

The borrower can be either an individual or a legal entity. The borrower’s credit rating is not considered. This makes the platform available to a broader segment of the market. The lender is typically an individual who provides crypto funds to those in need. For this purpose, both lenders and borrowers must first create profiles on the platform.

How Do P2P Crypto Lending Exchanges Work?

• A P2P crypto lending exchange operates in an amazingly simple and straightforward manner. The process begins with the two main parties opening accounts on the exchange and creating profiles by submitting the necessary information.

Lender Account: 

• The information typically includes the lender’s name, phone number, address, bank account information, and the type of investment desired.
• The lender should also specify the types of borrowers with whom they would like to work.
• Once the account is established, the lender must await a request from the borrower.

Borrower Account:

•  The borrower also provides personal information such as name, address, phone number, and proof of identification.
• The borrower must provide collateral (including crypto coins, guarantor, or legal documents).

P2P Crypto Lending Platforms

WazirX 

WazirX was registered as Zanmai Labs in December 2017 as a domestic cryptocurrency startup. The exchange provides an option to a trader to transact in Rupee or WRX, which has to be purchased on the WazirX platform. This helps us stay true to the ethos of cryptocurrency and blockchain – to share the rewards of WazirX’s success with our early adopters and supporters.

Point of Contingency

• Require KYC Document
• On Deposit Rs4 to 6 charges
• On Withdraw 0.006 BTC charge
•  Deposit money in INR, USDT, WRX, BTC, etc. form
• Maker charge =0.20 %, Taker charge=0.20 %

CoinSwitch Kuber

CoinSwitch Kuber makes cryptocurrency investments simple and hassle-free for retail users in India.it is an online digital cryptocurrency exchange aggregation platform for Virtual Currencies also known as VC, tokens, digital tokens, or cryptographic currency. The Platform provides access to an online digital assets exchange.

Point of Contingency

• Require KYC Document
• No Deposit Charge
• No Withdraw Charge
•  Deposit money in INR, BTC, etc. form
• Hidden Charges are Charge

CoinDCX 

CoinDCX is a cryptocurrency exchange platform. The company is also certified with ISO certification by the International Organization for Standards and is insured by BitGo. The company’s minimum lending duration is seven days.

Point of Contingency

• Require KYC Document
• No Deposit Charge
• Withdraw Charge is 0.0005 BTC
•  Deposit money in INR, BTC USDT, etc. form
• Maker charge =0.10 %, Taker charge=0.10 %

Advantages of peer-to-peer lending 

• Higher returns for investors. However, when compared to other types of investments, P2P lending offers investors higher returns.
• Some borrowers find peer-to-peer lending to be a more accessible source of money than typical bank loans. This could be due to the borrower’s poor credit score or the loan’s normal purpose.
• Interest rates that are lower P2P loans typically have cheaper interest rates since there is more competition among lenders and fewer origination fees.

 Disadvantages Peer-to-Peer lending 

• Credit risk: Peer-to-peer loans carry a significant risk of default. Many borrowers who apply for P2P loans have poor credit scores that prevent them from obtaining a traditional bank loan. As a result, a lender should be informed of his or her counterparty’s likelihood of default.
• There is no insurance or government protection in place: If a borrower defaults, the government does not provide insurance or any other form of protection to the lenders.
• Legislation: Some authorities prohibit peer-to-peer lending or impose investment requirements on enterprises that provide such services. As a result, certain borrowers and lenders may be unable to access peer-to-peer lending.

Eligibility Criteria for the Peer-Peer Lending

Even though the P2P portals are open to anyone in need of money, they primarily attract people from low-income families or with a low CIBIL score who have no other option for obtaining loans. The final decision to lend, Although, rests with the lender, who can be either an individual or an institution.

RBI’s latest Guidelines on NBFC – P2P Lending Platforms in India

The RBI finalized the regulations for peer-to-peer lending in 2016, and it had previously issued a consultation paper on the subject.

The government authorized the RBI to regulate P2P lenders as non-banking finance companies in September 2017.

It has now issued its final guidelines on Peer-to-Peer Lending Platforms.

The following are the most recent rules for NBFCs that want to operate as peer-to-peer lending platforms.

• The maturity of the loans must not exceed 36 months, according to the central bank.
• The aggregate exposure of a lender to all borrowers at any point in time, across all P2Ps, would be limited to Rs 10 lakh.
• The same limit (Rs 10 lakh) applies to a borrower’s total loans taken at any point in time across all P2Ps.
• A single lender’s total exposure to the same borrower across all P2Ps cannot exceed Rs 50,000.
• P2P lenders would be permitted to make only unsecured loans and would not be permitted to accept collateral in exchange for the loans they make.
• The RBI requires P2P lending platforms to submit quarterly reports on their payment structures.
• P2Ps must obtain a certificate from the borrower or lender, as applicable, confirming that the above-mentioned limits are being met.
• Peer-to-peer lending platforms should not accept deposits or lend on their own.
• The NBFC-P2P lenders will also be unable to cross-sell any product other than loan-specific insurance products and will only be able to store and process data relating to their activities and participants on hardware located in India.
• Credit enhancement or credit guarantees should not be provided or arranged through the platforms.
• The international flow of funds has been prohibited.

An NBFC-P2P will be expected to:

• Perform due diligence on the participants Conduct credit assessments and risk profiling on borrowers and share the results with prospective lenders.
• Undertake loan agreement and other related documentation.
• Aids with loan disbursement and repayment.
• Provide loan recovery services for loans originated on the platform.

Conclusion

In developed countries, peer-to-peer lending is most common. It provides a convenient lending medium for potential borrowers in need of funds. Loans of all types are made without the issuance of any collateral security. Before proceeding with this lending, the borrower’s credit history, as well as the terms and conditions of the transactions, must be confirmed. Although peer-to-peer lending is a convenient form of lending, both the lender and the buyer must be cautious about the lending transactions they enter.