Peer-to-Peer lending & borrowing in India | Finzy

High interest charged on loans & evaluating the credit history by banks are painful for every individual. To remove these tight & cumbersome processes - P2P come into the picture. As always, we break the topic in a summarized way for a better understanding & bring conceptual clarity - So, here we start!

➲➲ What is P2P ?

• Peer-to-peer (P2P) lending is a new method of debt financing/investments that allows people to borrow & lend money without a financial institution. Harnessing technology & big data, P2P platforms connect borrowers to investors faster & cheaper than any bank.
• P2P lending is here to grow rapidly in coming years & it's new source of fixed income for investors. Compared to stock market, P2P investments have less volatility & low correlation. They also offer higher returns than conventional sources of yield.
• Decentralised financial network, where loans are funded by individuals as opposed to companies in financial network.
• As per the research report of PWC, $ 5.5 billion lent in 2014 & will reach to $ 1 trillion within few years ( $4 - $5 billion in India by 2025).
• Microlending suits well when we talk about small, often short-term credit/ loan that is easily accessible.

➲➲ How does this platform work ?

• Investors are  called as 'individual lenders' who transfer money into a lenders escrow account which is managed by a trustee. Investors can create a Portfolio via Manually investing & cherry pick the borrowers as per their choice viz basis borrower's profile, rating, rate of interest, etc.
• They can invest via convenient auto option which creates a balanced portfolio ensuring the risk & returns are optimised.
• System ensures investment/lending is spread across minimum of 5 borrowers thereby mitigating the risk.
• The EMI collected from the borrowers are transferred into the borrowers escrow amount & then credited to respective lender's bank account. The Escrow account ensures the flow of funds are transparent & there s no conflict of interest.
• Peer to peer platform is a matching system which facilitates lenders to identify qualified  borrowers. 

We have taken the example of Finzy, the premier peer to peer solution in India who connect borrowers with investors & make the entire process simple & easy.

Finzy provide a matching platform where lenders can identify qualified borrowers. Qualified here, means those borrowers that meet stringent credit evaluation & assessment process. Finzy was the first peer to peer lending company in India to have applied for the P2P NBFC license & winner of Outlook Money 2018 - Most promising FinTech company of the year.

➲➲ What Finzy is offering to both the counterparties ?

• Online access to take/give credit at a very low interest rates.
• standard tenure of loan is 36 months, however the monthly returns has the principal & interest component
• no pre-payment or fore closure charges & liquidity feature (makes this more attractive)
• protection of sensitive information
• a user friendly & transparent investor dashboard to create, manage & view the loan portfolio
• easy EMI options/ automatic transfer between the banks without any manual intervention
• average return to the investors is 15.5% p.a. with a option of reinvestment into new loans, thereby revealing the power of compounding & further diversifying the portfolio every month.

➲➲ Business Model of Finzy :

• One time processing fee of 1% to 4% from the borrowers is charged depending on the rate of interest offered 
• In comparison to other platform, Finzy charge only 1%+GST of the EMI that investors/lenders receive.

➲➲ Is it safe to apply loan from Finzy ?

• Since Finzy is registered under NBFC-P2P of the RBI act, it makes this platform more reliable & regulated (in 17 months of operations, ZERO NPA was analysed)
• Finzy have a proprietary credit algorithm that looks at 130 parameters of the borrowers to assess the loan application.
• Assessment is not limited to CIBIL score or the category of the company but takes into account the social media activity, demographic information, income details, employment details, etc.
• A collection team is assigned to counter parties for hassle free settlement between both the counterparties.
• Finzy (& other fintech companies have a superior Credit evaluation process as compared to banks.
• Rejection rates in the platform is approximately 84%.

➲➲ Eligibility to apply :

• Parties to a transaction should be Indian citizen (over 18 years of age) with necessary KYC.
• Borrowers should be salaried individual or/and self employed.
• Maximum borrowing/limit is 10 lacs INR, which is approved by RBI (in Finzy, limit is 5 lacs INR)

Rate of Interest served by Finzy varies depending upon the type of borrowers (Prime & underserved). 10.99% is the minimum which touches to maximum 21.99% whereas borrowers are rated A(A1 to A6) & B(B1 to B6).

Aim of Digital India & Digital Lending status as per the BCG research report for 3 months of 2018 makes it clear about the growth. 1,881 consumers in India out of 2364 has purchased a digital loan product. The survey was conducted in 9 cities with a base of different earning capability of the individuals.

Digital Lending presents a large opportunity in the Indian context. It is estimated that the total retail loans which could be disbursed digitally in the next 5 years could be over $1 trillion.

To tackle - India should be ready for the below :

• Potential of digital lending in the country require skills that do not exist adequately today. By installing apps or surfing on the websites are easy process. Brainstorming post execution is limited where we are still working on increasing the bandwidth of internet.
• Non- traditional companies have to transform their liability structure by decreasing the assets of banks.
• Multiple types of partnerships are required between bank-fintech, eco-system even in lender-lender partnership. (e.g., blockchain)
• online shopping platforms where companies give loans for purchasing the products. 

Last Lines ~

Over two years, we have seen large developments in cashless transactions & government is actively helping the institutions to expand & make a digital ecosystem. These innovative models gaining foothold in the lending market. One thing is certain, we will continue to see drastic innovation & investor interest.