Peer-to-Peer LendingA Closer Look

By, Yogendra Kumar Bharti

PTPL An Introduction

Peer-to-Peer (P2P) lending is an integration of online communitiesand financial services.

P2P lending platforms enable the lenders and borrowers to directlydeal with each other, facilitating the lending transactions

A lower rate of interest as compared to a bank loan and the likelihoodfor the lender to receive a better interest rate as compared to abank deposit

Loans: Anytime, anywhere

Process: More Streamlined

Choices: Variety of alternatives based on the preferences and credit scores

The Direct P2P Model EBay for Loans

Lenders bid on loans based on interest rates;

lenders lend small amounts to multiple

borrowers

Borrowers post listings with maximum interest

rate; payments are distributed automatically

Online

Auction Social Finance

in Action

Note: Includes most developing country P2P platforms. Some variations do not

use an auction system but set the rates and terms themselves.

INTERMEDIARY P2P MODEL

Borrowers are subject to

Intermediary due diligence

and credit processes

Note: Interest rates and terms are usually set by the Intermediary or the P2P.

Lenders lend small amounts to multiple

borrowers

Intermediaries post borrower

profiles and distribute loans

Intermediaries collect

repayments and manage

delinquency

Borrower

Profiles

Borrower

Profiles

Financial Intermediation for the Investor

Benefits Easy access to new type of investment

Small investment minimums

Easy diversification on platforms

Higher interest rates than savings and CDs

Feel good about doing good Personal connection with borrower

Drawbacks Higher risk investment

Difficult to check borrower information

Personal sentiment may negatively influence investment

Borrower Access to Finance

Benefits Increase access to finance for the unbanked

Lower interest rates

Alternative source of capital during economic downturns

Simpler loan terms and limited collateral requirements

Easy application and disbursement

Satisfaction of paying interest to a person not a bank

Drawbacks Privacy could be compromised online

Loan amounts are limited

Generally more borrowers than lenders on platforms

Business Model

Borrowers & Lenders join

Xyz.com and link their bank

accounts with xyzs account

Borrowers post credit listing

along with the reason for loan

and max interest rate

Lenders bid on credit listings indicating a

minimum rate either for entire

amount or part of the loan

Home ownership/ Credit history/ debt-to-income

information about borrower

During repayment xyz debits money from borrowers

account and credits to lenders account on pro-

rata basis

Borrower is offered loan at the lowest bid

rate

Leading Peer-to-Peer Lending platforms

Faircent.com (1)How it works:

On the website, two pools of members register: Lenders (Indivdual/Institutional) and Borrowers

Borrower:

Should be resident of India with min gross income of INR 3 lacs per annum with valid KYC.

Can Borrow: For Personal loan: Between Rs. 30,000 and Rs. 5,00,000 & Business loan: Up to Rs25,00,000.

Can borrow minimum for 6 months and maximum for 36 months.

Faircent conducts a strict verification process of the data and documents provided by Borrowers. In addition we appraise each request to ensure the credit worthiness of Borrowers meets with the market standards.

Once your verification is complete, Borrower can access potential lenders on our site also post its requirement and await offers from lenders.

Faircent facilitates secure transfer of funds electronically through an integrated payment system between Lenders and Borrowers.

Borrower require to make EMI payments by the 07th of every month

Repayments are equated monthly installments calculated using the reducing balance method

Faircent.com (2)

Lenders:

Individual Lenders should be resident of India with min gross income of INR 10lacs per annum with valid KYC having a record of investing.

Institutional Lender should be RBI listed finance companies or Companies formedunder the Indian Companies Act

Faircent conducts a strict verification process of the data and documents providedby Lenders

Lender can make a direct offer to any listed borrower as per choice. If a borroweraccepts your offer, Lender will receive an immediate notification. Borrowers toocan approach Lender and Lender have the right to accept or reject their loan.

When both parties give the go-ahead, the process of formal contract signingbegins. After the loan is disbursed, you will receive EMIs on the 10th of everymonth

Repayments are equated monthly installments (EMIs) calculated using the reducingbalance method.

Depending on the size of wallet balance, Lenders can lend to multiple borrowers.

Faircent.com (3)

Faircents role:

Verifying each and every member registered, either as a lender or borrower.

Once a borrower and a lender come to a mutual agreement, Faircent will help

them legalize the transaction by signing a formal contract.

Once a loan is disbursed, Faricent help lenders with the collection and

recovery of loans as per official guidelines of RBI for banks and financial

institutions.

All monetary transactions are directly between the two parties.

Transfer of money takes place through cheques. Lenders are required to

directly issue cheques in the name of borrowers. And the Borrowers are

required to issues Post Dated Cheques (PDCs) directly in the name of lenders.

Interest Rates & Fee - Borrowers Onetime listing fee of Rs. 1500 from Borrowers which is due at the time of listing.

Processing fee structure upon disbursement of loan request:

Pre-Payment Of Loan without any penalty/charges

In case of Non Payments Rs. 250 bounce charge and additional penal interest of 24% p.a. will be applied & a processing charge of Rs. 500

Loan interest rate will be a weighted average of the individual loan parts.

Borrowers can borrow money for 6 months / 12 months / 18 months / 24 months or 36 months only.

Interest Rate Less than Rs.1Lac Rs. 1 to 2 Lacs Rs. 2 to 3 Lacs Rs. 3 to 4 Lacs Above Rs. 4 Lacs

16% or less Rs. 2,000 Rs. 4,000 Rs. 6,000 Rs. 8,000 Rs. 10,000

16.25% to 21% Rs. 3,000 Rs. 6,000 Rs. 9,000 Rs. 12,000 Rs. 15,000

21.25% to 25% Rs. 4,000 Rs. 8,000 Rs. 12,000 Rs. 16,000 Rs. 20,000

25.25% to 28% Rs. 5,000 Rs. 10,000 Rs. 15,000 Rs. 20,000 Rs. 25,000

Above 28% Rs. 6,000 Rs. 12,000 Rs. 18,000 Rs. 24,000 Rs. 30,000

Interest Rates & Fee - Lenders

Registration fee of Rs. 1500 at the time of registration thereafter, for every

lac of rupees invested the processing fee will be Rs.1000

Loan interest rate earned will be a weighted average of the individual loan

parts.

In case of Non Payments additional penal interest applicable as per Faircent

will be applied to the due amount for the duration of delay which Borrowers

will be liable to Lender(s).

Lenders can invest from 6 months to 36 months.

Legal Agreement Format

formal contract

Lendbox.in

Almost similar process as Faircent.com starting from User Registration to EMI

Payments except mode of fund transfers; it can also happen through IMPS,

NEFT & PDCs where as Faircent encouraged PDCs only.

Lenders: No Joining Fee & listing fee of 1% or Rs. 1500 whichever is higher.

Borrowers: One time listing fee of Rs. 1,500 & fee structure of disbursement

as given below:

Prepayment and penalty on non payment is same as Faircent.com

Interest Rate Disbursement Fees16% or less 2% of Loan Amount or 2000 whichever is higher

16.25% to 21% 3% of Loan Amount or 3000 whichever is higher21.25% to 25% 4% of Loan Amount or 4000 whichever is higher25.25% to 28% 5% of Loan Amount or 5000 whichever is higher

Above 28% 6% of Loan Amount or 6000 whichever is higher

Thanks!