Significance of P2P platform in formalizing and building structured lending ecosystem

Being one of the fastest-growing economies, India is emerging as one of the thriving fintech hotspots in the world. The fintech platforms in India are revolutionizing the banking and financial industry with advanced technologies. Concepts like digital payments, mobile banking, secure payment gateways, and digital lending are being widely adopted across the country. There are many factors like an increased digital footprint, easily accessible internet data and smartphones in building a foundation for a paradigm shift in the traditional banking system. It has further led to the diversification of financial services.

Because of the increasing role of fintech platforms, the total size of the lending market in India has grown 100 percent from FY17 to FY21 at INR 156.9 lakh crores as of March’21.

Fintech companies have developed varied products that are now alternative to traditional lending systems. The companies have established positions in every segment ranging from wealth management and investment to personal and business loans. One such alternative to credit access is the P2P or peer-to-peer lending segment - digital lending platforms for easy loan disbursements.

In the backdrop of the COVID-19 led crisis, many Indians and MSMEs have to rely on personal loans to fulfil their needs and aspirations. P2P lending platforms have emerged as a promising alternative with low-interest rates, a simplified application process, and quick disbursal. Indian P2p lending sector, which is still in a nascent stage, is set to grow to $10 billion by 2025, as per a study.

P2P lending platforms bring borrowers and lenders together in a marketplace model where lenders can give money after analyzing the borrower profiles in the digital space. It provides an easy solution to both borrowers and lenders. Those in need of loans can borrow money for short term requirements at a lower cost and any individual with surplus funds can lend money on these platforms and gain an attractive return. The amount for borrowing and tenure varies from platform to platform. Platforms are giving out loans ranging from Rs 25,000 to Rs 10 lakh for the period of three months to 36 months.

To protect the interest of lenders and borrowers, the Reserve Bank of India had regulated P2P lending platforms in October 2017 by making it mandatory for P2P companies to apply for a license. It became compulsory for NBFC-P2P platforms to acquire a license to start their operations. RBI regulations ensured that there are certain rules in lending and borrowing in the P2P space. As a regulated space, P2P lending platforms have a higher scope of bridging the credit gap in the country. The regulatory measures have also boosted the confidence of lenders and borrowers in the emerging lending ecosystem.

P2P lending has democratized lending in the country. In the past few years, India’s credit economy has remained skewed due to several financial calamities. It has impacted the lending sector as well. The outbreak of Covid-19 added to the burden. While the post lockdown phases have seen a rise in credit demand, banks have adopted a cautious approach by tightening the liquidity, which increases the credit gap. However, P2P lending platforms provide credit to everyone, even those who are outside of the formal credit sector. In this way, P2P platforms are constantly bridging the gap and building a suitable lending and borrowing ecosystem.

In the few years, the sector has matured in terms of size and number and is growing rapidly. The P2P lending platforms are now offering custom products and services to cater to the country’s credit demand.

The P2P lending system has altered the Indian fintech landscape. Now every Indian can easily access credit instantly through a mobile phone app. The lending ecosystem is becoming more credit-inclusive while enabling the investors to move towards a different asset class. It is turning out to be one of the most creative fintech disruptions.

Especially when the Indian fintech sector has seen a significant number of players, who are also being regulated by the RBI. The RBI regulations make the sector stronger. Nevertheless, it is safe to conclude that the year 2021 has been a turning point in the country’s lending ecosystem.