What is P2P Lending/Peer-to-peer lending?

Kanchan Dwivedi

Kanchan is the founder of the Fintech P2P lending startup, LoanGini, a marketplace that aims to connect borrowers of small personal unsecured loans with lenders. They also look at disbursing and servicing those loans.

Whichever income bracket you may be in, there are times in your lives when you do not anticipate or plan for a particular outcome like a medical emergency, sudden travel due business or personal reasons, educational and need money suddenly. You are caught in a cash tight situation. Maybe, you need money to upgrade your old feature phone to a smartphone, or buy furniture for the new home, or a two- wheeler that will help in your commute to-and-fro from the office.

The latest Smartphone that you can buy using online P2P lending

Earlier, the only option was to borrow from friends, family, money lender or banks in the form of personal loans.

Lately, another category of lenders has become available in India , that of online Fintech lenders, and specifically, P2P , Peer-to-peer lending.

Brief History of P2P Lending

P2P lending in India started with companies like Faircent, i2iLending in India in 2014. Around 4 years back, the P2P industry was unregulated, and it faced many challenges like no strong or deterrent recourse in case of defaults, having to take post- dated cheques as a guarantee and, thereby, increasing the paper trail and physical touch in the relationship.

Then on Oct 4 2017, the RBI( Central Bank of India) came up with much awaited directives, Master Directions - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017

In P2P lending, the individual/ borrower and the retail lender are approved for the loan on a platform like LoanGini & register their profile and other contact details in their account profile. Based on their financial publicly available credit scores & background, they are given an internal company rating, and charge a commensurate rate of interest. They are then manually or automatically matched on the platform. To avoid major losses of default, the provisions are there to ensure more than one lender lending to one borrower. The payments are disbursed to the borrowers, and after that the lenders start getting loan installments from next month onwards , that constitute a steady interest on top of their principal.