January 23, 2019

The Growth of P2P Lending

Peer-2-Peer lending is expected to see a huge growth spurt in the near future

While the platform enabled transfer of money without the need of an official financial institution such as a bank as an intermediary, the RBI has granted an in-principle approval to drive P2P operations in the country. It is estimated that the value of P2P lending generated will be around $ 4 billion over the next five years in India.

India’s Digital Stack is paving the way for the country’s shift to a cashless ecosystem, wherein the main driver for the growth of the P2P lending industry is the budget allocation to the Digital India scheme. This will aid innovative digital solutions as well as promote the digital economy. It is no hidden fact that borrowers go through a cumbersome and time-consuming process to avail loans from banks and other financial institutions. Amidst the increasing penetration of smartphones, digital wallets and mPoS, the P2P lending is slowly rearing its head in the financial ecosystem.

Another factor that fueled the growth of P2P lending was demonetization. As it made seeking loans difficult for SMEs and MSEs, these enterprises will be the biggest beneficiaries of the P2P platform.

RBI intervention is playing a major role in fueling the growth of the P2P lending industry in a structured and regulated manner. The RBI has proposed giving Non Banking Financial Corporation (NBFC) to P2P lending companies. It has also laid down various official guidelines to drive the country’s social lending market forward in the near future. These guidelines will also safeguard the interest of all stakeholders — lenders, borrowers and P2P lending platforms.

The P2P lending platform has found its niche as it continues to fill the void left by banks. This will cater to the increase in demand for borrowing and the possibilities of greater returns. The P2P firms are complying with the regulatory guidelines laid down by the RBI to ensure data integrity and privacy of their customers. The benefit of P2P model is that P2P lending platform is isolated from the transaction itself. The money goes directly from the lender to the borrower. In this way the RBI has curbed the problematic aspect of guaranteed return.

With the government’s enthusiasm to promote a cashless ecosystem, digital players have reconstructed the financial sector. The P2P industry has revolutionized the trend of borrowing and lending, disrupting the long held monopoly of traditional financial institutions. This alternate industry is surpassing the existing direct finance options with innovative and seamless mechanisms.

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