Colloquium on P to P Lending at PIM: Resource Person Dr. Yashavantha Dongre

“P 2 P Lending: A Growing Investment Opportunity for Small and Retail investors” Dr Dongre

Peer to Peer Lending is a new concept and is a growing investment opportunity for the retail lending sector.  P to P lending would define the future of banking in India said Dr Yashavantha Dongre, Professor at University of Mysore at a colloquium on “P to P lending” organised by Poornaprajna Centre for Research and Development, a research wing of Poornaprajna Institute of Management, Udupi.  The evolution, nature, benefits, disadvantages, current scenario of P to P lending was clearly brought out by Dr Dongre.  He made an in-depth analysis of the three models of P to P lending namely ‘Direct P2P model’, Intermediary P to P model and; Micro Place Model’ and also the pros and cons of P to P lending for both the investors as well as the borrowers.  In addition to cutting down the cost of financial intermediation, P to P lending offers an added advantage of contributing to societal welfare by the lenders. Small and Retail lenders can contribute towards the development of social enterprises through this new concept he said.  The faculty members and students of PIM along with MCom students clarified their doubts about this new concept in banking with the resource person.  The programme which was carried out as a CSR initiative of Karnataka Bank was presided over by Dr Bharath, the Director of PIM. Dr Sureshramana Mayya, the Dean of PIM welcomed the gathering, Dr. Krishna Kothai, Co-ordinator of PCRD proposed vote of thanks and Dr.Bharathi Karanth, associate professor at PIM conducted the programme.  Dr Dongre began his speech by shedding light on the recent trends in the world of trade and commerce.  The five trends namely, E-commerce, Social business, Cryptocurrency, Reverse Mortgage and P to P lending have been making a remarkable impact on trade and business he said.  He threw a thought-provoking question by asking ‘Are banks a thing of the past’? With this note, he began explaining the concept of P to P lending. 

The concept of Peer to Peer lending: Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. The Reserve Bank of India in 2017, notified P2P lending to be worked as non-banking financial companies (NBFC’s)

PPT Slides of P2P Lending

Importance of Peer to Peer lending:

P to P lending is not a new concept. This concept can be said to be the modern refined form of informal lending that existed within the family, friends, ROSCAs etc.   The Internet has launched P to P lending to a new dimension, expanding communities beyond geographic boundaries and borrowing social networking ideas to create trust between strangers.  ‘Zopa’ is the UK's first domestic for-profit, P to P platform launched in March 2005.  Kiva in East Africa is the first platform geared towards microfinance. (non-profit).  The goal of P to P lending is to link the people with excess capital to those in need of capital, generally circumventing traditional banks, yet tapping into “retail investors/lenders”. The role of P to P lending platforms in democratising the credit markets for lenders and borrowers needs to be examined as they cut out the middle from financial intermediation in the traditional banking set up.  

Current Position of P 2 P lending:

The P 2 P lending industry in China has 50 million registered users and $192 billion of outstanding loans.  In India, P2P lending service providers have been in business in India since 2014.  In September 2017, RBI notified that these will be registered as non-banking financial companies and has come out with guidelines for P2P lending.  Mr Rajath Gandhi, founder and CEO of one of the P2P platforms has reported that the size of the Indian P2P lending market is around Rs.200 crore.

P 2P lending models:

The Direct P2P model: As it is indicated in its name, this platform offers a direct link between the lenders and borrowers.  Lenders bid on loans based on interest rates.  Lenders lend small amounts to multiple borrowers while borrowers post listings with maximum interest rates.  Payments are distributed automatically.

The Intermediary Model: Here the intermediaries act as a connecting link between the lenders and borrowers. Interest rates are usually fixed by the intermediaries.  DhanaX, Investors without Borders, Kiva, MyC4 and Rangde are some of the players in this model. Here the lenders send cash to a single P2P platform.

The Microplace model: The last one is ‘Micro place Model’, here from the point of lender the borrower is viewed as the platform.

The benefits of democratising financial intermediation for investors:

The following benefits will result from democratising financial intermediation. They are:

1.      Easy access to a new type of investment

2.      Small investment

3.      Easy diversification on platforms

4.      Higher interest rates than savings and CDs

5.      Feel good about doing good

6.      Personal connection with the borrower

Drawbacks, as are, follows:

1.Higher Risk investment

2. Difficult to check borrower information

3. Personal sentiment may negatively influence investment.

The benefits to the investors and the borrowers was brought out clearly by the resource person.  The current position of P2P lending, the different platforms of P2P lending in India were explained at length. The RBI regulations for P2P lending, important P2P platforms like www.i2ifunding.com, www.rangde.org, www.faircent.com,  www.lendbox.in www.cashkumar.com etc.  were discussed.