P2P Lending - Is this disruptive and emerging lending model has a long way ahead?

In this article, I am covering the recent developments in the space of P2P Lending in India and have explained the recent developments in P2P lending in detail.

In the month of January 2018, India's leading peer-to-peer lending companies have come together to form the Association of P2P Lending Platforms. The first-of-its-kind association will act as a representative for its members, as well as the country's P2P lending industry. In addition, the association will work in conjunction with the government and regulatory authorities in matters of compliance, and to further the cause of financial inclusion in the country. 

The association will actively work towards creating awareness about online P2P lending in India and promoting its merits as an innovative and high-yield asset class among individual and institutional investors. In line with this aim, the association will enter into strategic partnerships and collaborations with other stakeholders or industry players, organize seminar and events. The association will also invite honorary members from various domains to strengthen its authority in the Indian financial ecosystem. 

The association also intends to undertake research and development, collect data and conduct surveys that will further the development of the P2P lending industry in India. The research and its findings will be shared publicly, and exchange of ideas will be encouraged through various conferences, lectures and sponsored events. 

Online P2P lending is leading the way for the evolution of alternative finance in the country, and is facilitating financial inclusion on a massive scale. Given the government and the RBI's decision to include peer-to-peer lending as part of the national financial regulatory framework, the industry's prospects in the next few years look extremely promising.

The Association of P2P Lending Platforms and all its members will be dedicated to ensuring the utmost co-operation with the regulators, facilitating the in the industry's expansion on various fronts, and establishing P2P lending as an innovative and lucrative asset class among Indian consumers.

The growth projections for the P2P lending market, projected to be worth $4-5 billion by 2023, and the RBI's guidelines have lent immense credibility to the P2P lending model.

With the RBI's guidelines and the creation of a regulatory framework, online peer-to-peer lending is set to headline fintech's growth story in 2018, emerging as a disruptive force in investments and consumer lending. However, for the industry to make the most out of the emerging opportunities, P2P lending players will need to work together, not only with each other, but also with the government and regulators to ensure overall growth for the sector.

As of 2017, Micro, Small and Medium Enterprises (MSMEs) contribute about a third of India’s manufacturing output and provide employment to over 10 crore people. Despite this, the share of institutional lending in the total borrowings of MSMEs is less than 10%. P2P lending industry in India is all set to bridge this gap. As per the PWC estimates, India’s P2P lending industry has a potential to become the USD 4 billion industry over next few years.

As the risk-taking ability of banks has got severely impacted by the asset quality problems in the big-ticket category, they are likely to go slow on loan disbursals, especially to SMEs and borrowers with limited credit history. In turn, this may also keep the interest rates on deposits low due to lack of uptick in loans. As a result, investors & depositors would continuously be in search of better alternatives to Bank and NBFC FDs. P2P lending NBFCs are likely to be the biggest beneficiaries of this trend. After RBI establishing guidelines for the sector during the year 2017, the credibility of P2P lending platforms has jumped substantially. More people would be keen on joining the platforms as investors.

P2P-NBFCs will continue their journey towards creating a niche for themselves. Fundamentally, they are well placed at the moment. Unlike banks, they don’t have to maintain statutory reserves. To avoid the overheating of the sector RBI has put in place minimum net worth criteria and has also prescribed maximum exposure limits per lender.

The huge untapped market, growing awareness and unique product offerings will make P2P lending NBFCs a compelling proposition to lenders as well as borrowers. This coupled with the Association of P2P Lending Platforms will help streamline the industry. It will work with various stakeholders in the alternate lending and financial services ecosystem to further reinforce the sector's potential in the market.

All these recent developments in the P2P Lending platforms is certainly a step in popularizing this alternative avenue of investing for risk taking investors, which certainly has a potential to generate handsome returns in the years to come.