P2P Lending: Risks and Rewards for Stakeholders

In one of my blog post, I have discussed the emerging P2P lending ecosystem in India. Surely, this space has witnessed growth in the last five years and after RBI’s recognition of this sector as NBFCs but it is not near to the growth, the developed economies have witnessed.

The government’s lack of impetus towards the sector and China’s dramatic rise and fall of P2P ecosystem have made all the stakeholders jittery especially the investor class. But, these all are the challenges any nascent sector faces and overcomes eventually. It was just a brief heads-up of the sector’s current state, and we are now moving towards our topic.

The primary stakeholders in P2P lending are borrowers and lenders who generally referred to as investors. The P2P platform role is of an intermediary which supports the whole process and all stakeholders.

P2P Lending for Borrowers

For borrowers, P2P lending is a one-stop platform with many advantages like loans at a competitive interest rate, flexible repayment terms and a fast online application process.

Most of the borrowers in the P2P platform are the one who had difficulty to get access to bank credit because of low credit score or lack of collateral. In P2P, there is a quick turnaround time for loan approval, which is the feature and borrowers with good credit score can get loans at competitive rates.

If the borrowers maintain his profile like meeting the terms of loans continuously, then approval to the future requirement of loans become much easier and don’t have to go through the documentation process.

Like advantages, there are certain disadvantages such as, there is no surety that your profile will be accepted for loan approval. And, if the loan amount is higher, you have to pitch to a larger lender base to meet all your requirement.

P2P Lending for Investors

For investors, P2P lending offers a great deal to their idle surplus money as an alternative source of investing. The investor or the lender can earn higher interest rates on their investment in a range of 15-30%. The investments have predictable and stable returns and act as a great asset class for portfolio diversification. You also have greater control over your money, like whom to lend.

With greater rewards, risks are also high. And, for investors, the risks are even higher compared to borrowers. All the loans issued on P2P platforms are unsecured in nature and the platform also doesn’t guarantee its performance. If the borrower default on his loan payment, it will directly affect the investor.

Conclusion

P2P Lending surely has its own set of pros and cons for both investors and borrowers, but it doesn’t undermine the scope of opportunities ahead. Right business pitch and right set of borrowers and people always makes it easier for all other stakeholders to grow and flourish. With technology and favourable regulation, P2P will be considered as a part of India’s growth story.

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