With peer-to-peer (P2P) lending not taking off the way micro finance and NBFC ventures have, many are coming up with innovative schemes to instill more trust in the system and attract a bigger audience.
A big challenge for them is to convince normal middle-class households to lend to strangers. To help them overcome that, P2P platform MoneyClub enables people to lend to or borrow from only a trusted network of family, friends and colleagues. The company feels this would lower the chances of a default.
Monexo ensures less risk for lenders by keeping a lender’s contribution to a loan to only Rs 1,000. So if a Monexo customer lends Rs 1 lakh on the platform, it gets split across 100 loans.
Faircent also has a similar strategy. It does not allow lenders to lend more than 20% of a single borrower’s requirement. So for an average loan of Rs 1 lakh, there will be on average 43 lenders funding that. They also advice lenders not to lend beyond Rs 5,000-7,000 for one loan. “This fractionalising of loans to lower risk has helped increase trust in the platform,” said Rajat Gandhi, CEO and co-founder of Faircent.
Another measure that is helping the industry is transparency. RBI rules mandate that P2P lenders have to publicly disclose the number of loans, performance of these loans and NPA rates on their site. “The average tenure of our loans is 18-20 months and investors have more information than the general public. We give them more data on individual borrowers, apart from the overall portfolio performance,” said Gandhi. Faircent has disbursed over Rs 100 crore in loans from 1 lakh lenders to 6.5 lakh borrowers as of February 2019, and the venture says lenders get a return on investment (ROI) between 14% and 24%.
LenDenClub charges their facilitation fee across each EMI, till the end of the loan tenure, instead of deducting the full amount in the first EMI itself. This provides investors more comfort because LenDenClub also stands to lose if there is a loan default, and will therefore likely do proper follow-ups with customers for paybacks.
LenDenClub also fractionalises its loans. “Earlier, lenders could lend up to Rs 10,000 to a single borrower. But we realised in this game, we need to really lower their risk and exposure, so we reduced that to Rs 5,000 and last year we further reduced that to Rs 2,000,” says Bhavin Patel, CEO of LenDenClub, which has disbursed more than Rs 45 crore loans to 90,000 borrowers from 17,000 lenders on its platform.
Despite being purely digital players, the online platforms do physical KYC, which also instills trust. “We share that data with lenders. We also call customers into our office for physical signing of documents before the loan disbursal,” said Abhishek Gandhi, CEO of Rupee Circle. The company also collects post-dated cheques and shares data with the credit bureaus.
“This we hope will act as a deterrent because if they default with us, they won’t get their next loan from any bank or NBFC,” Gandhi said. Another innovation to protect lenders’ interests is insurance. Gandhi of Rupee Circle said it was a struggle to get an insurer for such small loans, but the venture finally got Tata AIG General Insurance to insure the loans. “So if there is a personal accident, the whole loan due is covered. For hospitalisation for 30 days or more, one EMI payment is covered; and in case of loss of job, three months of EMI are covered,” he said.