Peer to peer lending often abbreviated as P2P lending as well, is the practice of lending money to individuals through online services. Borrowers are matched with lenders through lending companies but all services are provided on an online platform. The benefit of using an online platform is that it makes P2P lending easier to afford than borrowing money through traditional financial institutions.
Moreover, borrowers can easily borrow at lower interest rates even after the P2P company has charged its fee for making the match between the lender and borrower.
The Face of Peer to Peer Lending in India
Peer to peer lending can be identified as a disruptive technology; something people are not sure about. A good example of a disruptive technology is the Internet. in the beginning, Internet was mostly a source of information for academic people or researchers. However, it soon became a foundation of technological advancements as we know them today. the thing to understand here is that it can take some time to see the results and benefits of a disruptive technology.
Many people believe that the current decade is all about financial technology. We have seen innovations like virtual currency in the financial industry. Virtual currency a.ka. Bitcoin is taken as a revolution in the financial sector and has already sunk its roots in the Indian market. Therefore, an innovation like P2P lending should not come as a surprise to people interested in Indian financial market.
P2P Popularity in India
Peer to peer lending began from the Western markets but India was not far behind. The banking sector in India is only able to provide credit to 15% of the population which seems quite a small figure given that India is the largest democracy in the world. However, analysts believe that India is the largest P2P market. Due to the fact that many P2P platforms in India don’t make their books public, it is difficult to calculate the amount of lending through them. However, there are over 30 start-ups in India which proves that P2P lending is gradually becoming popular. Some of these companies provide individual loans but others mix individual and business loans.
The Need for Establishing Laws
It is important to set some rules and regulations when any practice starts becoming too common. It is natural that people might misuse a procedure that is rapidly gaining popularity. Once again, the internet is a great example here. Therefore, The Reserve Bank of India, which is the central bank in India, has recently decided to set laws to regulate the sector. P2P lending has the potential to produce positive results in India since it will be very beneficial for the people who don’t have access to financial institutions. It is more important because of this to make the sector play a constructive role instead of becoming a hazard to the society.
P2P lending has been growing unchecked in India for about 3 years now. The regulations will help the sector to gain credibility.