The rise of Peer to Peer lending in India

On the back of technology, fintech has grasped the depths and breadths of the Indian financial ecosystem, from remittances to virtual banking to insurance authentication and financial profiling. Peer to Peer lending, a rising sector in India’s fintech scene, made its debut eight years ago, but thanks to the country’s rising credit demand, the industry is currently creating the groundwork for rapid expansion.

Peer to Peer lending, which is driven by technology, has designed a reliable loan and borrowing process while opening up banking functions to the general public. By connecting potential investors and people looking for loans, the portal opens up the market for lending partners as well.

Broadening the horizons of Peer to Peer lending

Even though the market is still in its early stages, Peer to Peer has begun to acquire traction in India. However, the 2017 RBI recommendations addressed some of the industry’s major issues and cleared several unregulated practices.

• The notification issued by RBI compelled all Peer-to-Peer lending platforms to register as non-banking financial entities (NBFCs).
• The RBI has also reduced the upper limit criteria for lenders on the Peer-to-Peer platform from 50 lacs to 10 lacs, a regulatory step that the industry has widely praised.
• Furthermore, the RBI has encouraged all Peer-to-Peer operators to establish a trustee to supervise the movement of payments between escrow accounts of borrowers and lenders.
• According to the apex body’s requirements, the trustee must be bank-promoted to maintain proper platform supervision.
• Such regulatory measures have been pivotal in increasing the confidence of both the borrowers and the lenders while ensuring that the process remains transparent.

Why is Peer to Peer lending crucial in today’s market?

Peer to Peer lending platforms caters to the financial requirements of a huge segment of the population that would usually be excluded from the traditional credit industry.

The pandemic, which compelled banks and financial institutions to be prudent and restrain liquidity, expanded the country’s credit deficit even further.

Peer to Peer lending has been working hard to overcome this disparity while also creating favorable credit and borrowing environment.

The loan industry has grown significantly in recent years, with the size and quantity of lending platforms steadily increasing.

Riding the economic upswing, impending holidays, and a boost in consumer attitudes, the sector is offering personalized solutions and products to meet the country’s rising credit demand.

What makes Peer to Peer lending so appealing?

• The earnings on a Peer to Peer lending platform, which vary between 11-13%, are considerably higher when compared to savings deposits or mutual funds.
• The platform is rapidly growing as a new-age, alternative asset class that is progressively reshaping the investing environment in the country, with the simple premise of identifying borrowers asking for quick capital infusion and connecting them to lenders looking to make large returns.
• Lenders are executing the proper loans in a timely and safe manner, while also gaining exposure to new markets, and borrowers are now able to receive credit readily even in the country’s most isolated town or village.
• Businesses can expand their borrowers’ base by gaining access to customers who have been denied loans by traditional banking systems, thanks to their quick clearance procedure and effective complaints channel.

So, is India Peer to Peer lending ready?

India is the world’s second-fastest-growing economic powerhouse. Millennials, as young as 21 years old, nowadays are focused on living their life to the fullest, even if their resources are restricted or limited.

People are wanting money to be available practically instantaneously to meet these needs, which is why they are turning to newer routes of finance such as peer-to-peer lending in India.

The Fintech sector in India has a considerable number of firms with feasible opportunities that are regulated by the RBI and flourish in their area on the foundation of predictive stats, a solid back-end network, and effective collection and recovery methods.

Peer-to-peer lending is fundamentally transforming the Indian fintech environment by giving every Indian the opportunity to avail of instant credit. Because of this, India is becoming more credit-inclusive, which is helping investors access quality asset classes.