P2P lending comes of age in India

P2P lending is gaining a major foothold in India. Four major operators discuss the prospects and how technology is the distinguishing factor in the operations:

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When P2P lending started in China in 2005, it was only a $2 million industry. Today, it has grown to be a $164 billion marketplace. India has only 10% of consumer debt as a percentage of GDP. So, there is a huge opportunity here as consumption grows with a younger population forming a major bulk of the total. More so, SMEs are always on the lookout for less cumbersome, faster solutions with lower rates and lower transaction costs. The demand for P2P lending is therefore poised to receive a huge fillip. It can easily become the third leg after banking and NBFC.

Having said that, the P2P industry in the country is still small. While P2P lenders can play an active role in meeting the funding needs of the SMEs and small time entrepreneurs, there is another role possible in bringing in financial inclusion. If they choose to assume a rural focus, they can address the needs of the agriculture sector, the village based small cottage industry units and individual artisans, an area which the traditional lenders hesitate to enter. Their procedures relating to documentation, KYC and evaluation of credit worthiness are less cumbersome and less time consuming, ensuring faster distribution of finance. The challenge, however, could be the need to have better and faster connectivity and extension of the technology infrastructure to service these clients.

Will P2P lending firms create a synergy with the traditional lending institutions, especially the newly created payments banks and small finance banks? It is difficult to say although it remains a fact that they will impact the business of the latter. What is encouraging is the development that some of the leading eCommerce firms are working in tandem with P2P lending firms.

We bring an assessment of the operations of four leading Indian P2P lending firms: