Online Money Lending is a type of electronic loaning that permits people and organizations to get and loan cash through web-based platforms. Dissimilar to traditional banks and monetary establishments, online cash loaning doesn’t need actual branches, extensive desk work, or security. Instead, it relies on technology, data, and algorithms to assess the creditworthiness of borrowers and offer them customized loan products.
Online Money Lending Through P2P Platforms
One of the most popular and innovative forms of online money lending is peer-to-peer (P2P) lending. P2P lending is a type of crowdfunding that connects borrowers and lenders directly, without any intermediaries. P2P lending platforms act as facilitators that match borrowers and lenders based on their preferences, risk profiles, and loan requirements. P2P lending platforms also provide services such as credit verification, loan disbursal, repayment collection, and dispute resolution.
Benefits of Online P2P Platforms for Investors
P2P lending has emerged as a lucrative and attractive option for both borrowers and lenders in India. Here are some of the benefits of P2P lending in India:
- Higher returns for lenders: P2P lending platforms offer lenders the opportunity to earn higher interest rates than traditional investments such as fixed deposits, mutual funds, or bonds. According to a report by one of the leading P2P lending platforms in India, lenders can earn up to 14% p.a. with P2P platforms. Lenders can also diversify their portfolio by lending to different borrowers across various risk categories and loan tenures.
- Predictable Returns with Less Risk: One of the primary attractions of P2P lending is its potential for stable and predictable returns. Unlike the volatile nature of the stock market, where prices can fluctuate rapidly due to various factors, P2P lending typically offers fixed or predictable returns, providing investors with a steady income stream over time. Comparing P2P lending with stock market returns we can see that it is less susceptible to market fluctuations and external economic factors. Since loan repayments are typically unaffected by short-term market volatility, P2P lending can offer investors a degree of stability and resilience during turbulent market conditions.
- Passive Income Generation: P2P lending offers investors the opportunity to generate passive income through interest payments received on loans. With automated investment tools and reinvestment options available on P2P lending platforms, investors can build a passive income stream without the need for active portfolio management or monitoring.
- Regulatory Oversight: P2P lending platforms are subject to regulatory oversight and compliance requirements, providing investors with a level of assurance and protection. Regulatory frameworks governing P2P lending promote transparency, fairness, and responsible lending practices, enhancing investor confidence in the asset class. P2P lending in India is regulated by the Reserve Bank of India (RBI), which issued the Master Directions for NBFC-P2P in 2017. The RBI has laid down various guidelines and norms for the P2P lending platforms, such as:
- The P2P lending platforms must be registered as NBFC-P2P with the RBI and have a minimum net-owned fund of Rs. 2 crores.
- The P2P lending platforms must conduct due diligence to the borrowers and lenders and disclose all the relevant information to them.
- The P2P lending platforms must ensure that the aggregate exposure of a lender to all the borrowers across all the P2P platforms does not exceed Rs. 10 lakhs, and the exposure of a lender to the same borrower does not exceed Rs. 50,000.
- The P2P lending platforms must ensure that the loan maturity period does not exceed 36 months, and the loan amount does not exceed Rs. 10 lakhs.
- The P2P lending platforms must facilitate the fund transfer between the borrowers and lenders through escrow accounts maintained with banks, and not handle cash transactions.
Conclusion
P2P lending in India is a fast-growing and promising sector that has the potential to transform the landscape of online money lending. P2P lending offers a win-win situation for both borrowers and lenders, who can benefit from higher returns, lower costs, and greater convenience. P2P lending also contributes to the social and economic development of the country by providing access to credit and creating opportunities for the masses. P2P lending is the future of online money lending in India.
P2P lending can be advantageous for investors. Even with the risks involved, lenders frequently profit from higher returns than they would from conventional savings accounts or other types of alternative investments.
This is because P2P lending often has interest rates higher than what banks give on fixed deposit or savings accounts. Lenders may therefore be able to increase their return on investment even after deducting the default risk.
Though the possibility of greater returns can be tempting, it’s important to remember that there is a bigger risk involved. Because of this, before choosing to lend through a P2P network, lenders should carefully assess their investment goals and risk tolerance.
