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P2P lending in India: Is it truly delivering a disruptive new asset-class?

P2P has been able to open the doors of lending to everyone and it provides a great investment opportunity to people.

ET CONTRIBUTORS|
Dec 28, 2017, 01.01 PM IST
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Small incremental changes that P2P lending wanted to bring in the fintech space in the country have resulted in significant momentum and this is bound to continue.
By Rajat Gandhi

At the outset, it is important to understand what constitutes disruption. For many it is doing something radically different and out of the box that has upended a sector or segment. This may be correct, but to a certain extent.

According to the most acceptable description of innovative disruption and one proposed by Clayton Christensen, author of the famous book ' The Innovator's Dilemma', talks about how innovation by startups that are disruptive often start at the low-end or new-market footholds. Incumbent players or companies are vulnerable as they do not focus on the lower end of the market, leaving it open and ripe for a nimble startup to do something radical.

The second aspect about disruptive innovation is that it is often considered inferior to existing products when it is launched, and customers often do not want to try it out even if has a lower cost attached to it. Customers wait for the quality to improve and then embrace the lower price points, thus causing significant changes in the market.

Lenders pride
When we started the P2P business, it was all about reaching out to borrowers who have been untapped by the formal sources of finance. I will get to that in my next point, but during our journey we have realized it was not only about the borrowers, but also about lenders. It was not easy to draw lenders to the model, but once they realized the potential, it was clear to them that P2P was a good alternate source of investment. After all, for centuries, lending was the domain of banks, the method through which they earned everything. To be able to provide that to individuals and to give them an opportunity to be a part of something innovative has been very educational. P2P has been able to open the doors of lending to everyone and it provides a great investment opportunity to people.

However, as the tenet of disruption says, people may not accept a product only because it is disruptive, but prefer to wait, there is evidence to support this theory. The P2P industry and us included have painstakingly worked to safeguard the lender's interest, use technology to help lenders take the most informed lending decision and strengthen every process of the P2P value chain. From having bank-grade security to having the best credit verification technologies, P2P in the country has relentlessly worked to make the sector better. The recent government guidelines for the sector have been another shot in the arm and further validation of our model. All the measures that we and the sector has taken is in fact showing results. We have a record number of more than 25,000 registered lenders on our site. This number is only rising everyday and as the industry matures, we are bound to see greater participation.

Borrowers
When it comes to borrowers, the impact has been more straightforward. P2P has enabled a whole new section of individuals to seek credit. This also includes a section, hitherto neglected by traditional banks. With far superior reach, low overhead costs, competitive rates of interest, faster processing of credits and a great degree of flexibility, P2P has successfully upended the lending sector in the country. What is interesting is that a large percentage of our loans today, more than 50% is business loans for small and medium businesses. It is well known that there is a credit squeeze and it is uncannily difficult to borrow money from a bank. It is not surprising that we find a large chunk of businesses now looking at raising funds from P2P sites. When banks cannot provide the money, individuals like you and me can now do the same through an institutionalized way.

In that sense P2P has been revolutionary. The impact in terms of numbers may still be low, but it shows and there is evidence to prove that the needle has moved.

Is it disruptive?
There is bound to be a difference of opinion when it comes to this question, but there is no doubt that there is a change and it is not temporary in nature. Small incremental changes that P2P lending wanted to bring in the fintech space in the country have resulted in significant momentum and this is bound to continue. So, has P2P addressed a market often ignored by the incumbent? It certainly has. Has P2P become better so as to get people excited to try it out? Again, it definitely has. Is P2P disruptive? I would say it certainly has been, but in the Indian context, it can make serious and material difference to the credit scene in the country. To that end, there is a lot of work still to be done.

The writer is founder & CEO of peer-to-peer lending marketplace, Faircent.com.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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