Peer-to-Peer LendingA Closer Look
By, Yogendra Kumar Bharti
PTPL An Introduction
Peer-to-Peer (P2P) lending is an integration of online communitiesand financial services.
P2P lending platforms enable the lenders and borrowers to directlydeal with each other, facilitating the lending transactions
A lower rate of interest as compared to a bank loan and the likelihoodfor the lender to receive a better interest rate as compared to abank deposit
Loans: Anytime, anywhere
Process: More Streamlined
Choices: Variety of alternatives based on the preferences and credit scores
The Direct P2P Model EBay for Loans
Lenders bid on loans based on interest rates;
lenders lend small amounts to multiple
borrowers
Borrowers post listings with maximum interest
rate; payments are distributed automatically
Online
Auction Social Finance
in Action
Note: Includes most developing country P2P platforms. Some variations do not
use an auction system but set the rates and terms themselves.
INTERMEDIARY P2P MODEL
Borrowers are subject to
Intermediary due diligence
and credit processes
Note: Interest rates and terms are usually set by the Intermediary or the P2P.
Lenders lend small amounts to multiple
borrowers
Intermediaries post borrower
profiles and distribute loans
Intermediaries collect
repayments and manage
delinquency
Borrower
Profiles
Borrower
Profiles
Financial Intermediation for the Investor
Benefits Easy access to new type of investment
Small investment minimums
Easy diversification on platforms
Higher interest rates than savings and CDs
Feel good about doing good Personal connection with borrower
Drawbacks Higher risk investment
Difficult to check borrower information
Personal sentiment may negatively influence investment
Borrower Access to Finance
Benefits Increase access to finance for the unbanked
Lower interest rates
Alternative source of capital during economic downturns
Simpler loan terms and limited collateral requirements
Easy application and disbursement
Satisfaction of paying interest to a person not a bank
Drawbacks Privacy could be compromised online
Loan amounts are limited
Generally more borrowers than lenders on platforms
Business Model
Borrowers & Lenders join
Xyz.com and link their bank
accounts with xyzs account
Borrowers post credit listing
along with the reason for loan
and max interest rate
Lenders bid on credit listings indicating a
minimum rate either for entire
amount or part of the loan
Home ownership/ Credit history/ debt-to-income
information about borrower
During repayment xyz debits money from borrowers
account and credits to lenders account on pro-
rata basis
Borrower is offered loan at the lowest bid
rate
Leading Peer-to-Peer Lending platforms
Faircent.com (1)How it works:
On the website, two pools of members register: Lenders (Indivdual/Institutional) and Borrowers
Borrower:
Should be resident of India with min gross income of INR 3 lacs per annum with valid KYC.
Can Borrow: For Personal loan: Between Rs. 30,000 and Rs. 5,00,000 & Business loan: Up to Rs25,00,000.
Can borrow minimum for 6 months and maximum for 36 months.
Faircent conducts a strict verification process of the data and documents provided by Borrowers. In addition we appraise each request to ensure the credit worthiness of Borrowers meets with the market standards.
Once your verification is complete, Borrower can access potential lenders on our site also post its requirement and await offers from lenders.
Faircent facilitates secure transfer of funds electronically through an integrated payment system between Lenders and Borrowers.
Borrower require to make EMI payments by the 07th of every month
Repayments are equated monthly installments calculated using the reducing balance method
Faircent.com (2)
Lenders:
Individual Lenders should be resident of India with min gross income of INR 10lacs per annum with valid KYC having a record of investing.
Institutional Lender should be RBI listed finance companies or Companies formedunder the Indian Companies Act
Faircent conducts a strict verification process of the data and documents providedby Lenders
Lender can make a direct offer to any listed borrower as per choice. If a borroweraccepts your offer, Lender will receive an immediate notification. Borrowers toocan approach Lender and Lender have the right to accept or reject their loan.
When both parties give the go-ahead, the process of formal contract signingbegins. After the loan is disbursed, you will receive EMIs on the 10th of everymonth
Repayments are equated monthly installments (EMIs) calculated using the reducingbalance method.
Depending on the size of wallet balance, Lenders can lend to multiple borrowers.
Faircent.com (3)
Faircents role:
Verifying each and every member registered, either as a lender or borrower.
Once a borrower and a lender come to a mutual agreement, Faircent will help
them legalize the transaction by signing a formal contract.
Once a loan is disbursed, Faricent help lenders with the collection and
recovery of loans as per official guidelines of RBI for banks and financial
institutions.
All monetary transactions are directly between the two parties.
Transfer of money takes place through cheques. Lenders are required to
directly issue cheques in the name of borrowers. And the Borrowers are
required to issues Post Dated Cheques (PDCs) directly in the name of lenders.
Interest Rates & Fee - Borrowers Onetime listing fee of Rs. 1500 from Borrowers which is due at the time of listing.
Processing fee structure upon disbursement of loan request:
Pre-Payment Of Loan without any penalty/charges
In case of Non Payments Rs. 250 bounce charge and additional penal interest of 24% p.a. will be applied & a processing charge of Rs. 500
Loan interest rate will be a weighted average of the individual loan parts.
Borrowers can borrow money for 6 months / 12 months / 18 months / 24 months or 36 months only.
Interest Rate Less than Rs.1Lac Rs. 1 to 2 Lacs Rs. 2 to 3 Lacs Rs. 3 to 4 Lacs Above Rs. 4 Lacs
16% or less Rs. 2,000 Rs. 4,000 Rs. 6,000 Rs. 8,000 Rs. 10,000
16.25% to 21% Rs. 3,000 Rs. 6,000 Rs. 9,000 Rs. 12,000 Rs. 15,000
21.25% to 25% Rs. 4,000 Rs. 8,000 Rs. 12,000 Rs. 16,000 Rs. 20,000
25.25% to 28% Rs. 5,000 Rs. 10,000 Rs. 15,000 Rs. 20,000 Rs. 25,000
Above 28% Rs. 6,000 Rs. 12,000 Rs. 18,000 Rs. 24,000 Rs. 30,000
Interest Rates & Fee - Lenders
Registration fee of Rs. 1500 at the time of registration thereafter, for every
lac of rupees invested the processing fee will be Rs.1000
Loan interest rate earned will be a weighted average of the individual loan
parts.
In case of Non Payments additional penal interest applicable as per Faircent
will be applied to the due amount for the duration of delay which Borrowers
will be liable to Lender(s).
Lenders can invest from 6 months to 36 months.
Legal Agreement Format
formal contract
Lendbox.in
Almost similar process as Faircent.com starting from User Registration to EMI
Payments except mode of fund transfers; it can also happen through IMPS,
NEFT & PDCs where as Faircent encouraged PDCs only.
Lenders: No Joining Fee & listing fee of 1% or Rs. 1500 whichever is higher.
Borrowers: One time listing fee of Rs. 1,500 & fee structure of disbursement
as given below:
Prepayment and penalty on non payment is same as Faircent.com
Interest Rate Disbursement Fees16% or less 2% of Loan Amount or 2000 whichever is higher
16.25% to 21% 3% of Loan Amount or 3000 whichever is higher21.25% to 25% 4% of Loan Amount or 4000 whichever is higher25.25% to 28% 5% of Loan Amount or 5000 whichever is higher
Above 28% 6% of Loan Amount or 6000 whichever is higher
Thanks!