A hoarding of a reputed bank says – ‘Why waste a whole day for a personal loan? Now get a personal loan approval in one minute’. There is a growing need for easy loan approvals, quick disbursement and better credit rating methods. Apart from NBFCs (non-banking financial companies), and other loan disbursement fintech platforms like Rubique, Finomena, Capital Float and several others, the P2P (peer-to-peer) lending space is gaining traction.
Vaibhav Pandey started i2iFunding to help larger groups of people. It is an online platform that connects verified borrowers looking for unsecured personal loans and investors looking for alternative investment opportunities for higher returns.
The idea of starting this platform came when he saw one of his colleagues borrow money from loan sharks at a monthly interest rate of 4 per cent to meet an urgent financial requirement, because his personal loan request was rejected by a bank.
Bringing traditional P2P with a fintech touch
This left him wanting to create something that would help people meet their financial needs at interest rates that would not fleece them. Vaibhav adds that P2P lending in India has been going on for decades in offline and informal settings. However, the number of people coming in as lenders were limited and it also resulted in increased costs of borrowing for borrowers.
“We at i2iFunding are trying to formalise P2P lending and bring more retail investors to this platform by providing them with various services like background verification of the borrowers, risk assessment, opportunity to diversify the risk by investing small a proportion of different loan requests, legal formalities, tracking and monitoring of repayments,” adds 34-year old Vaibhav.
Apart from providing end-to-end services, i2iFunding evaluates the credit risk of each loan project, basis its evaluation. The platform assigns risk category and recommends an interest rate for that project (a borrower has the option to borrow at an interest rate higher than or equal to this rate).
This ensures that both borrowers and investors are not clueless and are aware of the benchmark interest rate of a loan project. In the process, the investors get an opportunity to earn higher ‘risk-adjusted returns’, while the borrowers get an opportunity to get funded at the lowest cost possible as per their risk profile and market-based demand.
The evaluation process
After the basic registration, users fill a form to either become a borrower or a lender. In the case of a borrower, after they fill a form and upload supporting documents, the loan application passes through the platform’s proprietary risk evaluation model. This model determines the risk involved in terms of the borrower’s ability to pay, and intent to pay in future. Interest rate and maximum loan amount proportionate to the risk involved is then determined.
All registered investors can now see the borrower’s loan application and determine the amount they want to invest. An individual investor can now invest up to 20 per cent of the loan amount. This ensures that investors are diversified and have limited exposure to one single request. Once the loan request is fully funded, the i2i team performs the physical verification of the borrower.
During the physical verification, all the original documents are verified and a background verification is performed. One this process is complete, the loan agreement is signed by the borrower and un-dated cheques are collected in favor of all the lenders. After this, the lender disburses the amount directly to the borrowers’ account. From the following month, the repayment starts in the form of EMIs directly from the borrower’s account to the lender’s account. The system tracks all the payments till the completion of loans.
One of the biggest challenges Vaibhav has had to face is hiring the right resources. Apart from hiring, convincing customers about this new concept has been a challenge, especially convincing investors. “The highest point was when we were successfully able to fund a loan in two days for a borrower who wanted this money for the treatment of his ailing mother,” says Vaibhav.
The team started operations in October last year. Within five months of operations, they have had more than 600 registrations. The team claims they have closed funding of around 30 loans and have more than 170 investors with an investment commitment of over Rs.70 lakh.
The platform has an investor protection reserve, which provides a guarantee on the principle amount lent. Depending on the risk category of the loan, 40 to 60 per cent of the principal amount will be refunded by i2i to investors in case of any default.
Core team and funding
Apart from Vaibhav, i2iFunding has been co-founded by Neha Aggarwal and Manisha Bansal. Neha holds an MBA from XIM Bhubaneswar and has a background in finance product developments. Manisha on the other hand is a CA. She has also worked in the past with NGOs like CAT Protection and ADHD in the UK overseeing finance and treasury activities. The core team consists of IIM alumni. “We are a very small team of 15 people as of now and we have a very flat organisational structure,” adds Vaibhav.
As of now, i2iFunding is bootstrapped, but is in advance talks with a few angel investors for funding. “We currently have investors from all across the country; however, borrowers are mainly from Delhi NCR and Bangalore. We are looking to expand to all major cities of India in the next couple of years,” says Vaibhav.
The P2P space
It is estimated that India may be one of the biggest offline peer-to-peer (P2P) lending markets in the world, as nearly 50 per cent of all credit is circulated amongst friends, families, and communities. A rough estimate would peg the technology-enabled P2P lending market in India at about more than $4 million.
The recent years have witnessed the emergence of pioneering technology-enabled P2P lending platforms such as Kiva, Rangde, Milaap, Nobroker and Faircent. While the latter two work on the Bottom of the Pyramid sectors, Faircent caters to the increasing and substantial urban middle-class, both as a source of cheap credit and a lucrative investment option. In the last eight months, Faircent’s market place has had over 1,500 lenders committing nearly $2 million and some 6,500 borrowers seeking over $3 million. The platform has also raised an undisclosed round of funding from Mohandas Pai’s Aarin Capital Partners.