Everyone got a good idea about alternative investment which is not a conventional investment type like stock, bonds or FD. Mostly alternative investments are handled by large institutions and high net worth individuals. It has got regulations, tax consideration, investment costs, etc like any other conventional investment.
Now it is the time to think about alternative lending. Let’s start with an example. Take Ramu the merchant who is running a grocery shop. As he is not having a good bank credit history or ITR filing, normally forced to take loan from lenders who are charging heavy interest rate of like 35-45%.
Traditional credit score systems are forcing Ramu to approach the greedy lender. The digital credit score systems are accessible to only small percentage of population in India. For large population, past credit history is mostly unavailable or incomplete. So people like Ramu depend mostly on friends, relatives, self help groups and finally lenders who are charging high interest rates.
This type of borrowing may satisfy his short term needs but for long term he will fall in trouble in most of the cases. There are many people like Ramu, denied bank loans from traditional banking institution due to lack of credit history. Big banks can’t help the merchant like Ramu to keep the business afloat. Here comes the P2P lending.
These types of lending takes place through an online plat form that uses technology to bring together lenders and borrowers. Lenders here are investors who are seeking attractive yield in their investments.
Now the question arises.
How the P2P or peer to peer lenders assess the credit worthiness of a potential borrower?
Identifying right borrower at right time and right place is a challenge for the lenders as they are not using traditional credit scoring parameters. Lenders are depending other data like social media behaviour, mobile phone records and psychometric methods. Using these new data analytics methods, future predictability is possible with a good accuracy.
Lenders are also customising product required for the borrower. For example Ramu, a grocery shop owner need credit for 1 month, where as a building material merchant require loan for quarterly basis. Their size of borrowing is also different. This will also change from place to place and time to time.
Digital infrastructure for loan distribution channel is an emerging area in India. They are mostly user friendly and hassle free. Borrowers are approaching these digital plat forms to reduce the head ache attached with getting a loan from a bank. So these sites are careful in their user interface approach. Thanks to the good and creative web designers.
How much return a lender can expect from peer to peer lending?
This will be between 12% to 36% depending on the risk category of borrowers.
Why you should look at peer to peer lending as an investment class?
This is a regulated business
Investment tenure is not long
Generally get high rate of return
Diversification scope
Regular cash flow
Traditional investors who ready to take a little more risk, then their return will be really attractive. In India P2P lending was always there. Digital transactions are increasing in India. I think we will see a massive flow is P2P lending in coming years.
Now it is the time to think about alternative lending. Let’s start with an example. Take Ramu the merchant who is running a grocery shop. As he is not having a good bank credit history or ITR filing, normally forced to take loan from lenders who are charging heavy interest rate of like 35-45%.
Traditional credit score systems are forcing Ramu to approach the greedy lender. The digital credit score systems are accessible to only small percentage of population in India. For large population, past credit history is mostly unavailable or incomplete. So people like Ramu depend mostly on friends, relatives, self help groups and finally lenders who are charging high interest rates.
This type of borrowing may satisfy his short term needs but for long term he will fall in trouble in most of the cases. There are many people like Ramu, denied bank loans from traditional banking institution due to lack of credit history. Big banks can’t help the merchant like Ramu to keep the business afloat. Here comes the P2P lending.
These types of lending takes place through an online plat form that uses technology to bring together lenders and borrowers. Lenders here are investors who are seeking attractive yield in their investments.
Now the question arises.
How the P2P or peer to peer lenders assess the credit worthiness of a potential borrower?
Identifying right borrower at right time and right place is a challenge for the lenders as they are not using traditional credit scoring parameters. Lenders are depending other data like social media behaviour, mobile phone records and psychometric methods. Using these new data analytics methods, future predictability is possible with a good accuracy.
Lenders are also customising product required for the borrower. For example Ramu, a grocery shop owner need credit for 1 month, where as a building material merchant require loan for quarterly basis. Their size of borrowing is also different. This will also change from place to place and time to time.
Digital infrastructure for loan distribution channel is an emerging area in India. They are mostly user friendly and hassle free. Borrowers are approaching these digital plat forms to reduce the head ache attached with getting a loan from a bank. So these sites are careful in their user interface approach. Thanks to the good and creative web designers.
How much return a lender can expect from peer to peer lending?
This will be between 12% to 36% depending on the risk category of borrowers.
Why you should look at peer to peer lending as an investment class?
This is a regulated business
Investment tenure is not long
Generally get high rate of return
Diversification scope
Regular cash flow
Traditional investors who ready to take a little more risk, then their return will be really attractive. In India P2P lending was always there. Digital transactions are increasing in India. I think we will see a massive flow is P2P lending in coming years.
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