What will you do, when you need a loan and no have time and space for all the paper work, follow-up and negotiations. More so, your current status may not be the best suited for extension of credit by a bank. And you definitely do not want to take a big swipe on your credit card or get a personal loan.
Earlier in India, the alternative was the informal money lending system. The localSahukar. They were primarily people with muscle power that dictated a high cost of borrowing. Most of them in market for more than just the money. Over dramatized in Hindi film by leering Jeevan or Bahubali of the area. It was and even today is definitely a hugely costly affair. No doubt it is considered the last option.
The business is simple. They are LENDER AGGREGATORS andBORROWERS BRIDGE. Also called ‘Peer 2 Peer’ (P2P). Considered as a disruptive technology innovation that is new to India. Globally, in countries like UK, US, Germany, China… it has been around for some time in different formats.
In china the market has grown from an insignificant value in 2010 to $120 billion in 2015. In US the two lenders account for over $18 Billion loans disbursed in 2015. In India the informal lending market is estimated to be INR $15 Billion (1 Lakh Crore) with a huge estimated unmet demand of $30 Billion in the Micro Enterprise Segment
P2P is yet to come under the penetrating focussed lens of regulators. They are still formative and small. But, one can expect it to happen soon. Till that time everyone remains enamoured with his or her approach. We can definitely expect a lot many new firms to join the space in 2016.
The idea seems so simple. Primarily online platform connecting qualified borrowers looking for unsecured personal loans and set of investors looking for alternative investment opportunities for higher returns thus creating a win-win situation for both borrowers as well as investors. Helping the process is technology, scrutiny, data variables monitoring and analysis.
The underlying premise is simple; detailed credit analysis of the borrowers defines the lending rate. Some players like i2i credit themselves with strong working knowledge in various domains like product development, finance, marketing and operations. They go a step further and recommend the interest rate lender should extend to the borrower. They believe that for a healthy future the risk profile and not the negotiation skills should justifies the interest rate.
My interest in ‘Peer 2 Peer’ is a result of meeting with Vaibhav Kumar Pandey, PGDM, IIMA (2009) and founder of I2I. Joining him is Raghavendra Pratap Singh, PGDM, IIMC (2010) , Neha Aggarwal, MBA, XIMB (2009) and Abhinav Johary, MBA, ABS.
Over few beers, I got a quick orientation on i2i business. It mirrors others FinTech firms. The differentiators; Interest recommendation, a Investor protection fund that guarantees the principle loan amount and ‘One Loan One Interest Rate’ that is intuitive, scalable and reduces transaction time for loan closure
‘i2i’ team promises protection to investors money by a Investor Protection Fund. It helps to mitigate biggest concerns of retail investors Investor, providing guarantee on principal amount lent. Depending on the risk and loan category, 75% to 100% of principal amount is covered by i2i in case of any default.Thus decreasing investor risk.
It not only sounds simple- it works smoothly. In i2i case
- The borrower registers and has shared documents
- FinTech performs the credit risk evaluation using its proprietary credit risk model to evaluate risk. These include PAN card, salary slip, bank account statement, education certificates, credit card statements, address proof, CIBIL score verification, house ownership documents and any other document depending based on the identified need when credit risk evaluation is performed.
- Based on this, a benchmark interest rate is assigned to the borrower below which borrower cannot post loan request.
- Borrower profile and request is up for the interested investors to access, evaluate and make the offer.
- Investors registered on its platform browse through profile and fund part of the loan request.
Being the bridge FinTech ‘Peer 2 Peer’ balances need and expectations of two sides. To borrowers it promises, attractive interest rates, fast loans sanction, no prepayment penalty, online hassle free process, transparent and seamless user experience and the claimed Security of personal information
On the lender / investor side, they share an opportunity of high returns on debt , hopefully lowered risk with greater credit scrutiny, opportunity to build high return diversified portfolio and online process for quick, transparent and seamless user experience
As against the informal system in the P2P lending firms there is a legally enforceable loan agreement between borrower and investors. It protects interest of the investors. In addition to providing post dated cheques, borrower also provides a promissory note to each of the investor, these are legally valid documents and can be used in case of delay or default.
In the whole process, FinTech makes money by charging an initial registration fee from borrowers and lenders. A fund management fee based on amount investor want to invest using the platform. A loan processing fee at a predefined percentage of the loan amount is charged from borrowers before the physical verification process. This fee varies depending upon the risk category assigned to borrower.
Seems net clean and smooth, at least on paper.
So, next time you do need some loan fast and with full transparency, do check with the friendly neighbour FinTech lender. May be the experience will surprise you.
First published in marketinguzzer.com
Sanjeev Kotnala with 28 years of corporate experience is Founder of Intradia World. A Brand, Marketing & Management Advisory, he focuses on IDEATION (Harvest and Liberate) and INNOVATION (InNoWait) process workshops and training.
Email firstname.lastname@example.org tweet @s_kotnala web: www.intradia.in www.sanjeevkotnala.com.