Introduction
Peer-to-peer (P2P) lending is a way for individuals to lend money directly to other individuals or small businesses, without going through a traditional financial institution like a bank. P2P lending companies act as intermediaries, matching lenders with borrowers and helping to facilitate the loan process. In India, the regulation of P2P lending is still in the early stages, with guidelines being set by the Reserve Bank of India in 2017. Some examples of P2P lending platforms in India include Cred Mint, 12% Club by BharatPe, LendingKart, Faircent, and i3i Funding.
Viability
P2P lending can be a good option for those looking for higher returns on their money than traditional bank deposits offer. Thereby, where the traditional bank Fixed Deposit rates vary around 6-8%, the P2P lending platforms can offer up to 12%. However, it’s important to know that there are risks involved. P2P lending also doesn’t have the traditional “three Cs” of lending: collateral, capacity, and creditworthiness. This means you don’t have any collateral to protect you if the borrower doesn’t pay back the loan, and you have to rely on their ability to pay and their creditworthiness as judged by the P2P company. The recovery in case of a default is somewhat troublesome as unlike with a bank deposit, there is no institution backing the loan, so there’s a chance you could lose your investment. The Non-Performing Assets (NPA) for P2P firms as a percentage are higher than the NPAs for traditional banks.
Conclusion
So is P2P lending a good choice? It really depends on your personal situation and how much risk you’re comfortable with. If you’re looking for higher returns than traditional bank deposits offer, P2P lending might be an option to consider. Just be aware that there is risk involved and as is the case with most investments, make sure you only invest what you can afford to lose. It’s important to do your research and carefully evaluate any P2P lending company before investing.
In conclusion, P2P lending can be a good option for those willing to take on more risk in exchange for potentially higher returns. Just make sure to carefully consider the potential risk-reward ratio.
Reference: Capitalmind
