Peer-to-peer lending expected to see huge traction in India

India largest remittance-receiving country in the world: report Representational Image | AFP

Peer-to-peer (P2P) lending, which helps people to borrow and lend money without the help of an official financial set up such as a bank as an intermediary, is expected to see huge traction in the country in the near future. It is estimated that the value of P2P lending to be generated in India over next five years will be around $ 4 billion (which will be 160 times the current lending size).

However, this is sum is small when compared to China where P2P lending book currently is around $100 billion, indicating the potential for exponential growth opportunity available for P2P in India. India currently has around 30 online P2P lending platforms with a current loan book of $ 25 million. Some of these firms are expected to become bigger and play an important role in democratising the availability of credit from big ticket borrowers to small ticket borrowers in the country.

Experts such as Rajiv Ranjan, the founder of Mumbai based BigWin Infotech that owns PaisaDukan—a P2P market place—feels that the main drivers for the growth of the Indian P2P lending industry is the recent budget allocation to the digital India scheme that has been doubled to Rs 3,073 crore. “This will focus on digital initiatives and the need for innovative solutions whilst promoting digital economy. Additionally, the Reserve Bank of India (RBI) has covered all the P2P operators with the regulation. The increasing penetration of smartphones and availability of mobile data at extremely affordable rates will also lead to a further growth of P2P lending in India,” said Ranjan.

Interestingly, PaisaDukan aims at greater financial inclusion and is involved in servicing of loans on behalf of matched borrowers and investors, and provides legal and recovery support, principal protection, evaluation of credit risk by a proprietary algorithm. This market place also became the first in the sector to get an in-principle approval from RBI to setup and eventually start its P2P operations in India. This platform is providing loans for all legal age groups as well as all loan requirements.

“P2P Lending platforms have found their niche by promising the finance industry an eco-system of their own. This will cater to the rise in the demand of instant borrowing as well as the possibilities of greater returns. P2P players have revolutionised the trend and have become the wave which is changing direction by providing an alternate way to surpass under digitised direct finance options. P2P firms are also moving fast with their focus on automation and innovation in offering loan products. They are conforming and complying with the regulator, (RBI) to ensure data integrity and privacy of their customers,” added Ranjan.

This expert further feels that over a period of time, P2P lending is going to have stronger roots in India since in upcoming developed markets, banks and institutional investors will potentially look to buy blocks of P2P loans to add to their portfolios.