Wednesday, 6 January 2016

Is Peer to peer lending dangerous – the myth!

Overtime many peer to peer lending platforms have come up in the Country. These online firms, also dubbed lend-to-save, offer high rates to savers who are willing to lend their money to individual borrowers but is this dangerous?

 If we look at the risks and elaborate them further, we can declassify this mystery surrounding the peer to peer economy:

1.    How can we check the credibility of borrower?

While it is true that the onus of due diligence in case of peer to peer lending lies on the lender; it is the responsibility of the respective platforms that all the borrowers are prescreened by them and requisite documents are collected. At Rupaiya Exchange these, for example, not only include the traditional KYC documents including PAN card, address proof, ID proof; but also includes bank statements, credit card statements, phone bills, utility bills etc. Additionally the social profile of each borrower is reviewed.

Only once the experienced credit team is satisfied with the credibility of the borrower is he/ she allowed to register him or herself. Further, an indicative/ reference credit rating is also assigned to the respective borrowers post reviewing the financial and social profile of the borrowers.

All such documents are available with the backend team of the platform and all lenders can access these documents for review while conducting their own due diligence.

2.    Principal protection If a borrower fails to repay the money that has been lent to them?

This is technically the biggest risk faced by any investor. To safeguard this, at Rupaiya Exchange, a special Lender Protection Fund has been incorporated which protects the principal of the investor. Hence at all times the money invested by the lender is protected.

3.    Inflationary pressures

The average rates offered at P2P lending platforms range upwards of 15% and can go upwards of 30%, which is more than enough to beat the current inflation. Also this represents a significantly higher return from some of the traditional financial instruments. 

4.    Is this legal

While in India there is no regulation surrounding P2P lending it is 100% legal since there is a formal contract signed between the lender and the borrower and all KYC norms are taken care off by the P2P lending platform.
Given the above, I for one do not believe in the myth of this asset class being dangerous and think that peer to peer lending can easily fit into ones investment nest.


Rohan Hazrati (@HazratiRohan) is the Founder of Rupaiya Exchange. He has worked across geographies and in his last assignment was the CFO and Managing Director of a multibillion dollar enterprise.
@RupaiyaExchange is a virtual market place for Peer to Peer Lending.
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