Peer to peer lending and its emergence
Evolution of the Lending Space –
Indian economy is one of the world’s fastest growing economies. It has one of the biggest consumer finance markets in the world with around 1.2 million dollars where the banking sector is expected to become the 5th largest in the world by the year 2020. Today India’s lending ecosystem has transformed into a sector of innovations put in by the fintechs and various development initiatives by the government. The financial institutions are yet to deep-dive into products and government to ease credit for the under-banked.
1.3 billion population in India is still under banked and under-served by the lenders. The under-banked areas still face the long processing time, standard vanilla products, and multiple sheets of paperwork.
Lending Space in India –
India’s traditional lending space is limited to direct relationship between borrower and lender. The lending space was restricted to offline processes by the banks and financial institutions. The transformation is amazing of how it has transitioned from frequent visits to the bank with documents to a ‘Few clicks away’. There is more to come into this space through paperless application and Instantaneous Funds Transfer for disbursals.
The Fintechs through their advanced ‘Interfaces’ and ‘User Experience’ setups have - Eased Processes, Reduced Costs, Reduced Turn Around Time, and bettered User Experience to pull up India’s lending space. The online lending startups in India are now moving towards peer to peer lending space that also is an untouched sector by the fintechs.
With the transformation in the lending space for the individuals and under-served areas it was equally important to solve the financial issues of small businesses. And, the only lending option that ties well with small business is ‘Peer to Peer Lending’. Fintechs have remodeled the P2P lending space in India and is expected to grow to a 3 – 4 billion dollar industry by 2023.
The growing p2p lending space aims to act as a facilitator between the borrower and the lender. These platforms structure the process of looking for a loan to choosing the lender. This type of lending is best for individuals looking for a loan options from another individual.
Making the lenders run a race with the technology in the ever-changing lending space. The heavy losses due to strong wind of disruptions into the financial sector in 2007-2008 allowed the lenders to make way through peer to peer and other lending options. The model is hugely successful in the alternate financing across the world. India is gaining a rapid grip on peer to peer lending making it an exclusive investment option for the investors.
It is one of the best alternatives amongst the lending options in India as it has a high return yielding capacity. The rapid growth in this segment has allowed the individuals to build a borrower-lender relationship.
The peer to peer lending space is at a sapling stage hence is mitigating risks and scams. There is a huge unmet demand for credits in India that has to be met with acceptance.
Peer to Peer for Small Businesses
It is the most viable loan option for the businesses who do not qualify from a loan from the banking institutions. The easy and hassle free registration and loan application process makes it more in-demand. Such loans have minimum documentation and quick loan processing time. Mostly, the P2P options come unsecured and do not require the small businesses that need large funds as compared to individuals to give collateral. The rapid growth in the lending space is to overall provide funds to help various sectors grow together.
India in 2017 is standing at the cusp of a revolution of financial and lending space. It has come a long way but still considering that the 2/3rd of the population is under-banked and has a long way to go. With the transformation in the whole ecosystem of lending and borrowing many fintechs and government initiatives are brought in with advanced technologies and innovative ideas. Given that the acceptance of such changes increases, India can surely become from approaching 5th largest to the largest banking economy.