Rapid digitalization has transformed the financial scenario in India beyond recognition, especially in the wake of the Covid-19 pandemic. And this has greatly influenced us to develop newer facilities like MobiKwik Xtra, a P2P lending service to offer our users a more convenient and flexible lending-borrowing service. Today, lending under the microfinance category is sweeping the credit horizon, offering lucrative opportunities to investors and borrowers alike. Thus, peer-to-peer lending is booming, with investors raking in extra money, far removed from the traditional and other investment avenues. So, let us dig deeper and learn about P2P lending and how it impacts the Indian financial sector. 

Understanding peer-to-peer lending:

Indian banking institutions dominate lending facilities covering a vast population. But the rural populace does not have access to capital without formal credit records, the primary requirement for traditional bankers. Thus, microfinance in the form of P2P lending fills the vacuum by riding on technology platforms encouraging participants to borrow, bypassing the conventional bank in between.

India’s P2P lending is an emerging concept on the investment circuit, where lending platforms use technology and intelligent algorithms to dish out small-ticket loans to credit-worthy borrowers. Thus, a small investment can spread to multiple borrowers to diversify risk, and the investors share the earned interest. Accordingly, today we, as a P2P lender, strive to satisfy our users’ financial needs without intermediation by banking institutions.

Who should consider P2P lending?

Deprivation of a sizeable Indian population lacking formal credit scores opens windows for P2P lending away from the traditional banking ecosystem. Moreover, the returns from traditional investment instruments like fixed deposits are shrinking. Therefore, investments in lending are emerging as a great business option with annual returns of up to 13% over five years. So, the microfinance investment option benefits both the investor and the borrower. In addition, investment in P2P lending makes you a contributor to the Indian growth story. 

Any Indian above 18 or a company can download our app, MobiKwik, and start investing in the P2P business model. All that you require is a bank account and an active PAN card. Even NRIs can invest in MobiKwik’s Xtra brand P2P lending platform through their NRO bank account. 

Myths and Facts – P2P lending in India:

P2P lending is a developing concept but rapidly gaining traction as more and more Indians register to the digital lending platforms. Today, more than fifteen P2P lending platforms are operating with a license from the RBI as NBFC. The consumer lending initiative relies on data science, cloud architecture, and technology to deliver an efficient business model providing low-cost financial services. In addition, the platforms ensure faster turnaround and accurate underwriting, leveraging India’s Smartphone penetration and low-cost internet connectivity to satisfy consumer needs.

While you may earn double-digit returns from investments in P2P lending, you must understand several asset class points. Myths and misconceptions are rife along with the business growth experienced in P2P lending as consumers connect with the platforms. So, it is mandatory to debunk these myths while gaining confidence in the concept while considering P2P finance as an alternate investment prospect. So, here are a few myths and associated facts to help you clear any lingering doubts. 

P2P lending is Unsafe:

Fact: P2P lending is a microfinance service covered by RBI regulations notified in detail in 2017. The lending platforms are NBFC with an Rs.50 Lac cap lending to minimize the lender’s risk. Moreover, technology-backed algorithms ensure that the investment is spread over hundreds of borrowers to mitigate investment risk. 

P2P lending is the same as Crowdsourcing: 

Fact: Both are innovative alternative investments sharing a unique core concept. Several individuals come together to pool money to fund a project in crowdfunding, while investors and borrowers combine in P2P lending to deal with short-term unsecured loans. On the other hand, P2P borrowers can seek loans from multiple lenders. Likewise, lenders can disburse loans to numerous borrowers. Thus, P2P lending is a safe alternative to the traditional finance model used by banks. 

P2P lending is challenging to avail:

Fact: On the contrary, P2P lending disburses instant personal loans for various purposes starting from a minimum of ₹25000. The registration and disbursal are online with a few clicks, while the process is quick and transparent without hidden charges. In addition, borrowers can approach several lenders simultaneously. 

P2P loans are for applicants rejected by banks:

Fact: It is startling to note that over 400 million Indians are first-time borrowers lacking formal credit credentials to approach banks for loans. Often, one ends up with usurious moneylenders charging extortionist interest rates. On the other hand, P2P lending is ideal for individuals undergoing internal evaluation to access loan options without formal credit scores. 

P2P lending needs a lot of money to invest:

Fact: Investments are not for the moneyed people alone, as is a common perception. On the other hand, P2P lending investment is open to every individual, big and small. Accordingly, you can invest ₹5000, while the maximum amount capped by the RBI is ₹10 Lac. Higher amounts require further compliance with stipulated conditions. 

P2P lending interest rates fluctuate:

Fact: The interest rates of the borrowers may fluctuate with the market. However, P2P lenders offer competitive rates between 5 and 15% per annum, and borrowers get a good deal. In turn, the lenders earn average returns between 10 and 12%, absorbing inflation of 6% over the long term. In addition, the returns are not market-linked, providing requisite stability. 

How to get started with P2P lending investments?

Let us consider Xtra, our investment product partnering with Lendbox – one of the oldest P2P licensed Indian NBFCs to understand initiation into the business model. But first, let us see what makes P2P lending great.

1. Monitored: The Lendbox lending platform is subject to audit under the RBI stipulated guidelines, besides MobiKwik’s internal monitoring of investments.
2. History: The lending platform has a proven track record with a combined experience of 10+ years in digital lending.
3. Steady Yield: The average annual yield has been a consistent 12%, with a 100% record of daily credits to investor accounts.
4. Automated Operations: At zero manual intervention, investors and borrowers enjoy a complete digital experience at their convenience. 

After gaining insight into the fundamentals of MobiKwik Xtra, let us explore how to get started.

1. Download MobiKwik App: You can download the app from Google Play or Apple Store for Android and IoS smartphones, respectively, to start your journey to P2P lending and investments.  
2. KYC Registration:  The second step involves KYC registration to establish your credentials as an investor or borrower eligible for MobiKwik Xtra. The three requisites for KYC compliance are Aadhaar, PAN Card, and Selfie. 
3. Click on Xtra: Open the MobiKwik app and click on Xtra under the Financial Services dashboard; agree to the terms and conditions to get started. 
4. Investment: Your screen displays returns up to ₹12000 per annum on a ₹1 Lac investment while you choose the “Invest Now” option. It is pertinent to point out that your investment deposit does not attract any fee while hundreds of borrowers split the money. In return, you get back your investment with interest. 

Bottom Line:

The evolution of the Indian financial sector in the last few years has been rapid, starting with the widespread use of the digital payments ecosystem, accentuated further by the Covid-19 pandemic. The natural process turned digital payment platforms like ours to diversify into various financial services, including investments. 

With the monitoring norms of the RBI in place since 2017, P2P lending gradually gained traction among investors and borrowers alike. Thus we are still making progress, small or huge, as an alternative to the traditional banking model. But, as with any emerging concept, P2P lending floated on several myths, which got busted with truths to generate consumer confidence.