With an approximate value of US$1.2 trillion, Indian economy is estimated to be among the largest markets for consumer finance in the world, after United States and China. It is also considered a largely underpenetrated market especially with regards to lending activities, as close to 70 per cent of the market is dominated by institutional lenders.
Since ages, lending activities in India have been carried out either by financial institutions like banks or by local informal moneylenders. However, these institutions are restricted in the scale of operation because of high operational costs and their dependence on the 'feet-on-street' business model. Also, credit assessments are largely restrictive and theoretical based on the judgment of the credit officer further restricting their ability to disperse loan to the masses.
However, in the recent past, there has been a rapid rise in online social media and activity, which has revolutionized communication across the planet.
Integration of social networking with financial services has led to emergence of peer to peer lending. This concept establishes a connection between the providers of finance and the borrowers who need credit. P2P Lending firms act as an intermediary between the borrower and the investor and make the whole process of getting the credit easier, transparent and hassle free.
Along with becoming an easier way to secure loans, P2P Lending has become the new asset class for the investors seeking high-yielding investments in the Indian economy. The volatility in the stock markets and rock-bottom rates of corporate and sovereign bonds have severely prompted the investors to turn to these platforms. By investing in these platforms, the investors get the chance to allot their capital to individuals of their choice, by selecting them from a diverse pool of applications seeking funds for varied purposes.
P2P Lending firms such as Faircent, Lendbox & I-lend are platforms where potential investors and pre-verified borrowers connect and pursue bilateral transactions. So, what exactly does make these P2P lending a lucrative asset class for its investors?
Retirement friendly, profitable & low risk investment
As people near their retirement age, they need an investment option where they can place their cash safely and see it grow. P2P Lending helps these investors to securely invest their hard earned money and see it grow while simultaneously maintaining stable cash flows. They can reinvest this cash into additional loans and continue to build and diversify their portfolio after the EMIs are paid on a monthly basis. It forms a good platform for investment, as the investor gets to play in a space where they get high and secure returns compared to yields from other debt instruments such as corporate or sovereign bonds.
Opportunity for monthly yield merchandise
A piece of a portfolio seeking short-term loans in peer to peer lending makes sense for a wide range of investors as it is a monthly yield generating asset class and in certain markets, it is reasonably liquid as well as it can be factored or refinanced. So, seasoned and smart investors who diversify their investments across various platforms and risk levels get comparatively higher yields and consistent returns.
Source : articlesbase.com
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