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Why Indian Youth Are Taking To P2P Lending For Investments? Research Team | Posted On Wednesday, September 06,2017, 05:10 PM

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Why Indian Youth Are Taking To P2P Lending For Investments?



You need money in a hurry? You have no choice but to borrow from friends and relatives. You need money urgently to start a business? You have to knock the doors of the bank. can always avail a personal loan if you need money in an emergency or a business loan if you need to start/expand your business. This is definitely the right approach, but the youth of India are in a hurry. They are looking at peer to peer lending commonly called P2P lending to meet their money needs.

So how to avail a loan from a P2P Lender? If you want to borrow, you have to register yourself on the P2P Platform. You will have to scan and upload your documents such as PAN card, Aadhaar card or your passport as an identity and residence proof as part of the KYC . You need to have a minimum monthly salary as per eligibility criteria and an active bank account.

You may also have to submit an income proof like  three months salary slip and ITR (You should be filing your income tax returns). Your documents are verified by the P2P lender. If the lender is satisfied with your documentation, you can register yourself on the online P2P lender. To register yourself, you will have to pay a registration and a processing fee.

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Why Indian Youth Are Taking To P2P Lending For Investments?

Simple...Indian youth want quick returns and have decided that lending on online P2P platforms are the way out. Online P2P lending platforms connect lenders with borrowers. If you are a lender on a P2P Platform, you could earn around 18-25% a year. More than 60% of lenders on P2P Platforms are less than 35 years old. Greed for such high returns is prompting the youth to lend in P2P Platforms.

Is P2P Lending safe?

If you are a borrower on an online P2P lending platform, P2P lenders check your credit score from CIBIL or some other credit bureau. They also check your social score. P2P lenders follow you on social media sites like facebook to get an idea of your spending habits.  They also check your connections on networking sites like Linkedin. P2P lenders then assign you a social score.

P2P lending platforms not only thoroughly verify borrowers, they also do not allow you to lend to a single borrower. To protect you, P2P platforms state that the loan requirements of a borrower, need to be funded by between 3 to 5 lenders. You are lending to different borrowers (say 3 to 5 borrowers), and if one of the borrowers defaults, you still get your interest and principal from the other borrowers.

In spite of all these safety measures, P2P Lending is risky. There are no regulations in this sector, but soon RBI will come out with some regulations.

SEE ALSO: How does peer to peer lending work?

How do youth use P2P lending for investments?

You can lend small amounts of even INR 5000 on P2P lending platforms. You can then select the borrowers under high, medium or low risk. P2P Lenders sort borrowers into these categories based on six months bank statement, CIBIL score, salary/tax statements and so on.

Reports show that lenders who invest up to INR 1 Lakh face volatility in returns, while investors who invest up to INR 5 Lakhs face least volatility in returns. Most of the borrowers on P2P Platforms are around the age of 25-35 years. These are young borrowers who earn decent salaries. Many lenders prefer single women (borrowers) as they make timely repayments.

The ability to earn returns between 15-30% a year is a powerful lure for the youth in India. P2P Lending is still in the nascent stage and the RBI regulations are eagerly awaited.

SEE ALSO: Aadhaar Card Check Online

Many P2P Lending platforms are looking to tie-up with insurers to offer cover against unforeseen events like an accident or death of the borrower. If you avail a loan of INR 2 Lakhs for 3 years on a P2P Platform, then for a slightly higher amount you get life insurance. If something untoward happens to you, your nominee gets the money, after the dues are cleared. Currently Insurers are waiting for RBI guidelines.

RBI Finalizes norms for P2P Lending Platforms

  • The P2P Platform can be registered only as an intermediary and is strictly prohibited from giving assured returns, directly or indirectly.
  • The P2P Platform can give its opinion on the suitability of the lender and the creditworthiness of the borrower, but cannot indulge in cross-border transactions.
  • P2P Platform must have a minimum capital of INR 2 Crores, with a prescribed leverage ratio and limits set on maximum contribution by a lender to a borrower/segment of activity.
  • There is a set of rules for promoters, directors and the CEO of the P2P Platform, with preference given to those from a financial sector background.
  • The P2P lender needs to have a brick and mortar place of business in India.
  • The P2P lender needs to have sufficient risk management systems.
  • Confidentiality of customer data and data security is the responsibility of the platform.
  • The P2P Platform will need to submit regular reports on their financial position, loans arranged each quarter, complaints and so on to the RBI.

Yes, the youth of India are taking to P2P lending in a big way. Now it's over to the RBI to manage this sector. Be Wise, Get Rich.

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